The crypto industry is witnessing another major legal battle as Terraform Labs’ bankruptcy administrator takes aim at proprietary trading giant Jane Street. Todd R. Snyder has filed a lawsuit in Manhattan federal court alleging that Jane Street exploited insider information to profit from the catastrophic May 2022 collapse of TerraUSD (UST) and Luna, which wiped out approximately $40 billion in market value within days.
The Insider Trading Allegations
At the center of the lawsuit is Bryce Pratt, a former Terraform intern who allegedly maintained backdoor communications with his old colleagues after joining Jane Street. The complaint paints a picture of systematic information sharing, with Pratt allegedly serving as a conduit for sensitive market intelligence between the two firms.
According to court documents, Pratt maintained what the plaintiff calls a “confidential back channel” with Terraform’s head of research. Messages cited in the filing reportedly included phrases like “don’t share pls,” suggesting both parties understood the sensitive nature of their communications. The lawsuit also alleges that Terraform personnel actively sought information about Jane Street’s internal discussions during the crisis.
The $85 Million Trade That Sparked Chaos
The lawsuit’s most explosive allegation centers on a massive 85 million UST trade that Jane Street allegedly executed on Curve Finance’s 3pool immediately after Terraform adjusted its liquidity positions. This transaction, described as “the largest single swap on the Curve 3pool,” allegedly served as the catalyst that sent UST into its death spiral.
The timing appears crucial to the plaintiff’s case. Rather than portraying Jane Street as simply another aggressive trader capitalizing on market volatility, Snyder argues the firm possessed material non-public information that gave it an unfair advantage during a period when other market participants were relying solely on public signals and deteriorating liquidity conditions.
Direct Communication During the Meltdown
Perhaps most damaging to Jane Street’s defense are the alleged direct communications between Pratt and Terraform founder Do Kwon during the height of the crisis. On May 9, 2022, as UST traded below $0.80 and panic gripped the Terra ecosystem, Pratt allegedly messaged Kwon directly: “Hey Do Kwon, just wanted to express our interest in bidding on either BTC or LUNA.”
Kwon’s response, referencing coordination with “Bill from Jump” regarding a potential Terraform fundraise, suggests Jane Street was deeply involved in emergency discussions while simultaneously trading against the very assets being discussed. This level of access, the lawsuit argues, positioned Jane Street not as an external market participant but as an insider with privileged information about Terraform’s rescue efforts.
Market Impact and Damages
The Terra ecosystem’s collapse sent shockwaves through the entire cryptocurrency market in May 2022. UST, which had maintained its $1 peg for months, plummeted to as low as $0.10 while Luna, the ecosystem’s native token, lost over 99% of its value. The cascading effects contributed to broader market volatility that saw Bitcoin fall below $30,000 and the total cryptocurrency market cap shrink by hundreds of billions.
Snyder’s lawsuit seeks both damages and disgorgement of profits, with any recovery intended to support distributions to Terraform’s creditors. The exact amount of damages being sought has not been disclosed, but given the scale of the Terra collapse, the figure could reach into the billions.
Jane Street Prepares Its Defense
Jane Street has signaled it will vigorously contest these allegations, setting the stage for what could become one of the most significant insider trading cases in cryptocurrency history. The trading firm’s defense will likely focus on several key areas: whether the information was truly material and non-public, whether Jane Street’s trades actually caused the collapse, and whether the plaintiff can prove intentional wrongdoing.
The case will also need to navigate the complex technical aspects of algorithmic stablecoin mechanics and decentralized finance protocols, areas where traditional securities law has limited precedent. How courts interpret these novel financial instruments and trading venues could have far-reaching implications for the broader DeFi ecosystem.
Broader Implications for Crypto Markets
This lawsuit arrives as cryptocurrency markets show renewed strength, with the total market capitalization currently standing at $2.17 trillion. However, the case serves as a stark reminder of the regulatory and legal uncertainties that continue to plague the industry, particularly around issues of market manipulation and insider trading in decentralized protocols.
The outcome could establish important precedents for how traditional market manipulation laws apply to DeFi protocols and algorithmic stablecoins. It may also influence how institutional traders approach compliance when operating in the intersection between traditional finance and decentralized protocols.