WSJ: Jump Trading Earned $1 Billion From UST Trades

The market maker Jump Trading struck an agreement with Terraform Labs (TFL) to support the TerraUSD (UST) peg, earning about $1 billion. This is according to SEC materials filed with the court, journalists from The Wall Street Journal found.

The document presented by the agency is related to allegations against TFL and its founder Do Kwon of fraud.

Subsequently, media reported that Jump Crypto employees, a subsidiary of Jump Trading, were questioned as part of the U.S. DOJ investigation into the collapse of the Terra ecosystem.

The Commission’s complaint states that, a year before the collapse, UST traded as low as $0.90 before beginning to recover. Do Kwon pointed to the rebound as an example of ‘automatic self-recovery’ algorithmic stablecoin. He hoped to bolster investor faith in the dollar peg’s immutability through the mechanism built into the token.

Kwon did not disclose information about the deal with Jump, which bought TerraUSD for tens of millions of dollars to restore its price to $1, the SEC said.

The documents officially corroborate reports by some media and rumours on social media that the market maker was an unnamed firm in the agency’s complaint, the journalists noted.

In May 2023, lawyers for investors harmed by the TerraUSD collapse filed a class action against Jump and the head of its crypto division.

In one of the SEC documents, Kwon sent a letter to TFL investors informing them of an ‘important agreement with Jump Trading’ and asking to keep the information confidential at the market maker’s request.

The deal was intended to improve liquidity for UST and the related LUNA token. In January 2020 Jump received options to buy the latter at prices of 30, 40 and 50 cents over the next three years. At the cusp of 2021 and 2022 the asset rose to as high as $90.

In another Commission document published in November 2019, an agreement between TFL and Tai Mo Shan, the ‘daughter’ of Jump Crypto, is described in detail, outlining the terms of a three-year deal.

In the revised July 2021 version, Terraform Labs agreed to provide Tai Mo Shan 61.5 million LUNA in monthly installments. It was concluded after Kwon urged Jump ‘save’ UST in May 2021. The arrangements canceled certain conditions that Jump had previously to meet in order to receive the LUNA, according to the SEC.

In response to regulator’s allegations regarding the unnamed market maker, TFL’s lawyers stated that the firm’s actions were not the sole reason for TerraUSD’s recovery in May 2021. They cited data showing that the market maker’s purchases accounted for only 6% of total transaction volume in that period.

On 23 March 2023, Montenegro policearrested Do Kwon, who was attempting to depart Podgorica airport for Dubai on forged documents.

The arrest followed requests from U.S. law enforcement, Singapore and South Korea. Earlier media citing Seoul prosecutors reported that he is hiding in Serbia.

In May, South Korea urged Montenegro to extradite Do Kwon to his homeland. The United States also seeks his extradition.

The extradition process will begin after Montenegrin authorities complete the trial into the document-forgery case. Kwon has not pleaded guilty to the charges.

Earlier, a court in Montenegro approved a bail of €400 000 (~$436 000) for Do Kwon.