The Secret Operations of Jump Trading: How They Made $1.28 Billion From the Collapse of Terra Labs

According to a recent court filing by the Securities and Exchange Commission (SEC), Chicago-based firm Jump Trading LLC secretly pushed Terra (UST), the algorithmic stablecoin created by Du Kwon, that led to its eventual collapse. It was a year ago. wall street journal informed of On to the findings, revealing that Jump Trading made an astonishing $1.28 billion from the scheme.

Jump Trading is a Chicago-based global trading firm specializing in a variety of 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 world’s largest trading firms with offices in Chicago, New York, London, Singapore and Shanghai.

The Dark Side of Terra’s Fall

The court filing sheds light on the secretive operations of Jump Trading, which allegedly used its trading power to steer the UST project without any public disclosure. The peg of the stablecoin was artificially maintained, leading to a prolonged “Ponzi scheme” that eventually led to its collapse.

The SEC has now directly confirmed that Jump secretly bailed out the UST project, moving the peg and tallying the Ponzi without any public disclosure. Generated over $1b in profit through its transactions with TFL and Do Kwon.

— FatMan (@FatManTerra) May 16, 2023

The filing also reveals the role of Terra and UST founder Doo Kwon in the scheme. Kwon is accused of making false claims of the project’s stability and performance, causing investors to pour money into the project. According to the Wall Street Journal, Kwon allegedly used the funds to promote UST Peg, perpetrating a Ponzi scheme and allowing Jump Trading to make massive profits.

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

Terra Labs and Jump Trading under scrutiny

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

The report reveals that Jump Trading had a three-year loan agreement with Terraform Labs for 30 million Luna tokens with 2% annual interest payable in Luna tokens. The loan agreement was part of a larger deal in which TerraForm Labs received a multimillion-dollar cash injection from Jump Trading in exchange for being allowed to buy Luna tokens for 30, 40 and 50 cents each over three years.

The court filing also includes an email from Quan to investors, in which he says TerraForm Labs had entered into a “significant 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 regarding the UST project, although the firm is facing a class action lawsuit from an investor over its alleged role in proliferating the stablecoin. The company has not commented on the allegations.

Featured image from Unsplash, a chart from TradingView.com