SEC Alleges Collusion Between Jump Crypto And Do Kwon’s TerraUSD

A little over a year ago, the UST stablecoin was one of the largest in all of crypto, with an $18 billion market cap, while its companion coin LUNA was hovering right around $90.

At the time, UST’s method of maintaining its $1 peg was seen as revolutionary. Founder Do Kwon was the man who finally invented a truly decentralized and scalable stablecoin. Almost everybody agreed: LUNA was going to the moon.

Then all hell broke loose. UST lost its $1 peg, sending the stablecoin and LUNA into an inescapable death spiral. Both coins went to 0, billions of dollars in wealth were eviscerated virtually overnight, Do Kwon went on the run, and the bear market we are still stranded in today officially began.

But what if this all played out a year earlier, when LUNA was $17 (instead of $90) and UST’s market cap was $2 billion (as opposed to $18 billion)? Sure, it would’ve hurt, but not nearly as much.

Well, it almost did.

In May 2021, UST lost its peg all the way down to $0.90 before rebounding. Do Kwon was vindicated, and with newfound investor confidence, the LUNA bull run was off to the races.

But, it turns out that close call was not stopped by UST’s mechanics. Instead, it was stopped because of a dirty deal between Do Kwon and the crypto trading firm Jump Trading.

For those that don’t remember, Jump Trading is the same firm that saved Wormhole with 120,000 ETH after it was hacked.

According to a recent court filing, the SEC has alleged that Jump Trading artificially maintained UST’s $1 peg in exchange for the ability to purchase LUNA for practically pennies. The SEC pointed out instances where Jump Trading was able to purchase the LUNA token for $0.3, $0.4, and $0.5 while it traded for $90 on the open market. That was a pretty damn good deal for Jump Trading, and it led to a $1.28B profit for the trading firm.

Revelations

Now, as they love to do, the SEC is still suing (as they should) Jump and Do Kwon over this whole debacle.

Kwon already has more legal troubles than anybody not named Sam Bankman-Fried, but his lawyers want the case thrown out, claiming that the firm was responsible for only 6% of the purchases that helped restore UST’s peg.

We may never know the truth, but if it does turn out that Jump artificially maintained an obvious Ponzi scheme in return for under-the-table profits, it’d be pouring gas on the SEC’s “crypto is a lawless land and we need to regulate it” fire.