Jump Trading’s Covert Operations: How They Made $1.28 Billion From Terra Labs’ Downfall

According to recent court filings by the Securities and Exchange Commission (SEC), the Chicago-based firm Jump Trading LLC secretly propped up Terra (UST), the algorithmic stablecoin created by Do Kwon, a year before its eventual collapse. The Wall Street Journal reported on the findings, revealing that Jump Trading made a staggering $1.28 billion from the scheme.

Jump Trading is a Chicago-based global trading firm specializing in various financial products, including equities, futures, options, currencies, and cryptocurrencies. The company was founded in 1999 by a group of former pit traders and has since grown to become one of the largest trading firms in the world, with offices in Chicago, New York, London, Singapore, and Shanghai.

The Dark Side Of Terra’s Collapse

The court filings shed light on the covert operations of Jump Trading, which allegedly used its trading power to prop up the UST project without any public disclosure. The stablecoin’s peg was artificially maintained, leading to a prolonged “Ponzi scheme” that eventually led to its downfall.

The SEC has now directly confirmed that Jump secretly bailed out the UST project, propping up the peg and prolonging the Ponzi without any public disclosure whatsoever. Jump made over $1b in profits through their dealings with TFL and Do Kwon. https://t.co/SGQwFBppoe

— FatMan (@FatManTerra) May 16, 2023

 

The filings also reveal the role of Do Kwon, the founder of Terra and UST, in the scheme. Kwon is accused of falsely claiming the project’s stability and performance, leading investors to pour money into the project. According to the Wall Street Journal, Kwon allegedly used the funds to prop up the UST peg, prolonging the Ponzi scheme and allowing Jump Trading to profit massively. 

Furthermore, the Chicago-based firm allegedly purchased over 62 million stablecoin tokens, pushing its price back to $1 and propping up the Ponzi scheme. The revelations raise questions about the transparency and integrity of the UST project.

Terra Labs And Jump Trading Under Scrutiny

Per the report, after the stablecoin’s recovery, Do Kwon touted the algorithm’s “self-healing” abilities and its ability to maintain a dollar peg through a code-enabled balancing act with sister cryptocurrency Luna. However, the court filings suggest that the recovery was due to Jump Trading’s covert operations rather than the algorithm’s inherent stability.

The report reveals that Jump Trading had a three-year loan agreement with Terraform Labs for 30 million Luna tokens with a 2% annualized interest payable in Luna tokens. The loan agreement was part of a larger deal that saw Terraform Labs receive a multimillion-dollar cash injection from Jump Trading in exchange for allowing the firm to buy Luna tokens for 30, 40, and 50 cents over three years. 

The court filings also include an email from Kwon to investors, in which he states that Terraform Labs had made an “important arrangement” with Jump Trading and asked investors to keep quiet about it. The revelations raise serious questions about the transparency and integrity of the UST project and the crypto industry.

Furthermore, Jump Trading has not been accused of wrongdoing about the UST project, although the firm is facing a class action lawsuit from an investor over its alleged role in propping up the stablecoin. The company has not commented on the allegations.

Featured image from Unsplash, a chart from TradingView.com