SEC Alleges Jump Trading Propped Up Terra Prior to Collapse

As early as February, an nameless supply had claimed that Leap Buying and selling was the corporate focused by the SEC for having artificially maintained parity for Terra’s stablecoin with the greenback all through 2021.

Now, in line with new court docket filings from the Securities and Trade Fee (SEC), the high-frequency crypto buying and selling agency Leap Buying and selling propped up Do Kwon’s the failed TerraUSD (UST) a yr earlier than its collapse.

Amongst the paperwork printed by the SEC, there’s a contract dated November 2019 that discusses a mortgage of 30 million LUNA remodeled three years between Terraform Labs and a subsidiary of Leap Buying and selling, Tai Mo Shan Restricted.

Terra was the challenge behind the algorithmic stablecoin UST. The token maintained its peg to the greenback by way of a novel mint-and-burn mechanism. Every time one UST token was destroyed, customers may redeem $1 within the challenge’s sister token LUNA. The identical additionally utilized within the different path; for each greenback of LUNA destroyed, customers may mint one UST.

If, for instance, UST slipped to $0.95, merchants may purchase a bunch at that worth however promote (and burn) it for $1 of LUNA to show a revenue. In doing so, UST provide is diminished, and, subsequently, the worth heads again up—at the very least, in concept.

In keeping with the SEC, in change for propping up the stablecoin, Terraform and its CEO, Do Kwon, permitted Leap Buying and selling to buy LUNA tokens at costs of $0.3, $0.4, and $0.5. The SEC highlighted situations the place Leap Buying and selling was in a position to buy these tokens at $0.4 whereas it traded for $90 on the open market.

Though Terra’s crash, which considerably contributed to the tip of the bull market within the crypto sector, occurred in Might 2022, the occasions in query date again to a yr earlier.

When the stablecoin initially fell from its $1 peg in Might 2021, Terraform Labs touted its return to parity as proof of the effectiveness of its algorithm.

Nonetheless, in line with the SEC, the token’s restoration was due solely to the intervention of Leap Buying and selling.

One other doc launched by the SEC is an electronic mail that dates again to January 13, 2020, from Kwon to traders during which he talked about an “essential association” with Leap Buying and selling.

Kwon requested that this data be stored confidential.

This association may have allowed Leap Buying and selling to appreciate a revenue of $1.28 billion, alleges the SEC.

Leap Buying and selling and Terraform Labs didn’t instantly reply to Decrypt’s request for remark.