Jump Trading Did Secret Deal to Prop Up TerraUSD Stablecoin, SEC Says Chicago firm made about $1 billion through dealings with crypto mogul Do Kwon’s company, according to the agency By Alexander Osipovich May 15, 2023 4:22 pm ET Jump Trading hasn’t been accused of wrongdoing in connection with TerraUSD or the coin’s May 2022 collapse. PHOTO: DANIEL ACKER/BLOOMBERG NEWS U.S. high-speed trading giant Jump Trading entered a secret deal to prop up the TerraUSD cryptocurrency a year before the coin’s collapse, new court filings show, highlighting the ties between Chicago-based Jump and disgraced crypto mogul Do Kwon. The Securities and Exchange Commission posted the court filings late Friday as part of its fraud lawsuit against Mr. Kwon and his company, Terraform Labs. The filings confirm that Jump was the unnamed U.S. trading firm in the SEC’s lawsuit that made some $1 billion in profit through its dealings with Terraform Labs, according to the SEC. A spokeswoman for Jump declined to comment. Jump hasn’t been accused of any wrongdoing in connection with TerraUSD or the coin’s May 2022 collapse. The crash wiped out some $40 billion in value from the crypto markets and cost thousands of investors their savings. One year before the collapse, in May 2021, the stablecoin TerraUSD fell below its $1 peg to nearly 90 cents before staging a recovery. Mr. Kwon later touted the rebound as an example of how TerraUSD “automatically self-heals,” bolstering investors’ belief that the algorithmic mechanism behind TerraUSD would keep it tied to the dollar, the SEC said in its February lawsuit. NEWSLETTER SIGN-UP The Logistics Report Top news and in-depth analysis on the world of logistics, from supply chain to transport and technology. Subscribe But Mr. Kwon failed to disclose the deal with a U.S. firm that purchased tens of millions of dollars worth of TerraUSD to push its price back to $1, the SEC said. Several documents that the SEC made public on Friday show the firm in question was Jump. The filings officially confirm a February report from crypto news website CoinDesk and rumors on social media that Jump was the unnamed firm in the SEC’s suit. Earlier this month, lawyers representing a New Jersey investor who lost money in the TerraUSD crash filed a class-action lawsuit against Jump and the head of its crypto division. In one of the documents released by the SEC, Mr. Kwon emailed investors in Terraform Labs about an “important arrangement we’ve entered into with Jump Trading” and asked them to keep the deal confidential at Jump’s request. Advertisement - Scroll to Continue The January 2020 email outlined a deal in which Jump would improve the liquidity of “Terra and Luna,” an apparent reference to TerraUSD and its sister cryptocurrency Luna. Jump would be rewarded with options to buy Luna at prices of 30, 40 and 50 cents over the following three years, Mr. Kwon said in the email. Another document released by the SEC is a November 2019 agreement between Terraform Labs and Tai Mo Shan, a crypto-trading affiliate of Jump, detailing terms of the three-year deal. At the time of Mr. Kwon’s email, Luna was trading about 20 cents. It surged to above $90 in late 2021 and early 2022, during the height of the popularity of Luna and TerraUSD. Buying Luna for less than $1 and turning around to sell it to investors during the Luna bull market would have been highly lucrative. The SEC also released an amended version of the Jump agreement from July 2021, in which Terraform Labs committed to deliver 61.5 million Luna to Tai Mo Shan in monthly installments. The amended agreement came after Mr. Kwon urged Jump to save his stablecoin in May 2021, and it removed certain conditions that Jump had previously needed to meet to receive the Luna tokens, according to the SEC. Lawyers for Mr. Kwon and Terraform Labs have asked a judge to dismiss the SEC’s lawsuit, arguing that the agency didn’t have jurisdiction to bring the case and disputing its fraud allegations. Responding to the SEC’s allegations about the unnamed U.S. trading firm, Mr. Kwon’s lawyers said the firm’s actions weren’t solely responsible for TerraUSD’s recovery in May 2021. They cited data to show that its purchases were just 6% of the total transactions that helped restore TerraUSD’s peg at the time. Federal prosecutors have charged Mr. Kwon with eight criminal counts of fraud stemming from the TerraUSD collapse. Mr. Kwon’s lawyers haven’t formally responded to the criminal charges and would be unlikely to do so unless he is extradited to the U.S. South Korea, Mr. Kwon’s native country, has also sought his extradition. Mr. Kwon is currently in Montenegro, where he was arrested in March while trying to flee on a private jet to Dubai. Local authorities there have charged him with forgery, saying he sought to travel with a fake Costa Rican passport. He has pleaded not guilty to forgery. Last week a court in the Balkan country agreed to let him post bail and await trial under house arrest.
Is there really such a thing as stable coin? Can anything be "stable" under the sun? Was the collapse of Tera/Luna a mere accident? Why are there so many naive people? Why do I even care?
I guess it should really be called a "pegged" coin. All its has to do is track USD. But since a crypto currency has operational costs, and there has to be an incentive to make money for the company, the trick is to always make sure that the dollar you take in can be redeemed for a dollar while also covering your costs. Once the company has a nice cushion of profits, then I'm sure things get easier. Its really no different than what's happening to every single pension fund out there. When rates were high, they could make their 7-8% needed to meet redemptions. But once rates dropped and stayed there, all these funds had to get creative to make money. On the flip side, tech companies did very well with zero interest rates, but once they go up, its all of a sudden much harder for them. Its kind of crazy to think how sensitive the entire world is to either a 0% or 5% interest rate. Both extremes kill certain parts of the market.