Terraform Administrator Sues Jane Street Over Terra Crash

• Terraform admin sues Jane Street over alleged insider trading before Terra crash.
• Terraform pulled $150M from Curve; Jane Street-linked wallet removed $85M minutes later.
• Lawsuit claims Jane Street accessed Terraform’s internal liquidity info via private chats.

The bankruptcy administrator for Terraform Labs has sued Jane Street Group LLC, alleging the firm used non-public information to trade ahead of the May 2022 collapse of TerraUSD and Luna.

The complaint, filed in the US District Court for the Southern District of New York, claims Jane Street accessed internal liquidity information and used it to unwind hundreds of millions of dollars in exposure hours before the ecosystem failed.

Jane Street has denied the allegations and calls the suit an attempt to extract money, according to a report from the Wall Street Journal. 

The May 7 Liquidity Move

Terraform collapsed in May 2022 when its algorithmic stablecoin TerraUSD lost its $1 peg. Its sister token, Luna, fell to near zero within days. The combined wipeout erased roughly $40 billion in value.

On May 7, 2022, at 5:44 p.m. EST, Terraform withdrew 150 million TerraUSD from the Curve3pool liquidity pool. The withdrawal was not publicly announced at the time.

Less than 10 minutes later, a wallet linked by analysts to Jane Street withdrew 85 million TerraUSD from the same pool, according to the complaint.

The next day, Do Kwon said the 150 million withdrawal was meant to move liquidity to a new pool. However, the timing of the shift was not public when the trades occurred.

The lawsuit alleges Jane Street had advance insight into these internal decisions and positioned itself around them. As per the report, the plaintiff said that Terraform removed liquidity, and market depth weakened as Jane Street withdrew shortly after, accelerating peg instability.

Alleged Back-Channel Communications

The complaint states that Jane Street began a deeper engagement with Terraform in February 2022. Bryce Pratt, a former Terraform intern who joined Jane Street, allegedly set up direct communication lines with Terraform staff.

A private group chat titled “Bryce’s Secret” allegedly included Terraform employees and was used to share information. The administrator claims these communications became a source of material non-public information.

The lawsuit also alleges Jane Street discussed potential investment opportunities while gaining insight into the internal liquidity strategy.

On May 9, with TerraUSD already below peg but not fully collapsed, Pratt reportedly set up a group message with Kwon and others to discuss bidding on Bitcoin or Luna. The market was already under stress.

The case claims that Jane Street had continued access to sensitive information during the crisis window.

Related: Jump Trading Hit With $4B Lawsuit Linked to Terraform Collapse