The cryptocurrency industry faces another major legal battle as Terraform Labs’ wind-down administrator has filed a bombshell lawsuit against trading giant Jane Street in Manhattan federal court. The complaint alleges 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 and sent shockwaves throughout the digital asset ecosystem.
The Core Allegations
Todd R. Snyder, the court-appointed administrator overseeing Terraform’s bankruptcy proceedings, has named multiple Jane Street entities and individuals in the lawsuit, including former Terraform intern Bryce Pratt. The complaint centers on accusations of insider trading, fraud, and market manipulation during one of crypto’s most devastating events.
According to the filing, Pratt allegedly served as a crucial link between the two firms, transitioning from an internship at Terraform Labs to a position at Jane Street while maintaining unauthorized communication channels with his former colleagues. The lawsuit claims he kept a “confidential back channel” with Terraform’s head of research, sharing sensitive information that gave Jane Street an unfair advantage during the market turmoil.
The Smoking Gun Evidence
The complaint includes damaging evidence in the form of internal messages that allegedly prove the existence of these secret communications. One particularly incriminating message reportedly contained the phrase “don’t share pls,” indicating awareness that the information being exchanged was confidential and inappropriate.
Even more revealing, the lawsuit claims that Terraform personnel actively solicited intelligence from Pratt about Jane Street’s internal discussions and trading strategies. This two-way flow of information allegedly gave both parties insights that were unavailable to other market participants during the crisis.
The Critical Trade That Changed Everything
The lawsuit’s most explosive allegation centers on an 85 million UST trade that Jane Street allegedly executed after Terraform adjusted liquidity in Curve’s 3pool. This massive transaction became “the largest single swap on the Curve 3pool” and, according to Snyder’s complaint, “precipitated a steep sell off in UST” that helped trigger the broader Terra ecosystem collapse.
The timing of this trade is crucial to the plaintiff’s case. Rather than portraying Jane Street as merely an aggressive trader capitalizing on market volatility, the lawsuit argues that the firm possessed material non-public information that allowed it to position itself advantageously while other market participants remained in the dark.
Direct Communications During the Crisis
Perhaps most damaging are the alleged direct communications between Jane Street and Terraform leadership during the height of the crisis. On May 9, 2022, as UST was trading below $0.80 and the ecosystem was in freefall, Pratt allegedly messaged Do Kwon directly, stating: “Hey Do Kwon, just wanted to express our interest in bidding on either BTC or LUNA.”
Kwon’s response, according to the filing, referenced “Bill from Jump” and mentioned contact regarding a Terraform fundraise. This exchange is being used to argue that Jane Street was not merely an external trading firm reacting to market prices, but was actively engaged in communications with Terraform leadership while emergency measures were being discussed.
Market Impact and Timeline
The collapse of the Terra ecosystem in May 2022 ranks among the most devastating events in cryptocurrency history. UST, which was designed to maintain a $1.00 peg through an algorithmic mechanism involving Luna tokens, began depegging on May 8, 2022. Trading volumes surged dramatically as Terraform Labs attempted to defend the peg, but the system ultimately failed catastrophically.
The broader crypto market, which currently maintains a total market capitalization of $2.17 trillion, experienced significant contagion effects from Terra’s collapse. The incident highlighted the risks of algorithmic stablecoins and prompted increased regulatory scrutiny across multiple jurisdictions.
Legal Battle Ahead
Jane Street has strongly contested these allegations and is expected to mount an aggressive defense. The trading firm will likely challenge several key elements of the plaintiff’s case, including whether the allegedly shared information truly qualified as material and non-public, whether Jane Street’s trades were actually causally connected to the Terra collapse, and whether the plaintiff can prove intentional wrongdoing.
The lawsuit seeks both monetary damages and disgorgement of profits, with any recovered funds intended to support distributions to Terraform’s creditors. Given the scale of the Terra collapse and the prominent parties involved, this case could set important precedents for how insider trading laws apply to cryptocurrency markets.
This legal battle represents another chapter in the ongoing fallout from Terra’s collapse, as various stakeholders continue to seek accountability and recovery through the court system. The outcome could significantly impact how trading firms operate in the cryptocurrency space and the extent to which traditional financial regulations apply to digital asset markets.