Jump Crypto Identified As Third-Party Trading Firm Profit $1.28 Billion From Crash UST

Key Points:

• The SEC had charged an unnamed U.S. trading company, Jump Trading, of aiding in the backing of the TerraUSD stablecoin when it de-pegged from the dollar in 2021.
• The trading company earned more than $1 billion in profit.

According to a report from The Block, Jump Crypto is the unnamed U.S. trading firm that the Securities and Exchange Commission claims supported the TerraUSD stablecoin when it de-pegged from the dollar in 2021.

The creator of TerraUSD and the associated LUNA token, Terraform Labs, as well as the company’s CEO, Do Kwon, was charged with civil violations by the U.S. Securities and Exchange Commission on Thursday. Among the alleged offenses is that the defendants misled investors by using a U.S. trading firm to support TerraUSD’s value in May 2021. According to the people, that company was called Jump Crypto.

According to the SEC complaint, the company spent just $62 million to keep the price of UST close to $1 in May 2021 but made $1.28 billion by selling off discounted tokens that it had bought in accordance with its contract with Terraform Labs.

Jump Crypto has not been charged by the SEC or accused of misconduct in any way.

Tens of billions of dollars were lost by investors when TerraUSD, a stablecoin that was frequently referred to by the ticker UST, crashed in May 2022. Nevertheless, the SEC made charges about a de-pegging that happened a year earlier, alleging that Terraforms employed human traders to sustain its value rather than the software program it said did so.

The SEC complaint said:

“In May 2021, when the value of UST became ‘unpegged’ from the U.S. dollar, Terraform, through Kwon, secretly discussed plans with a third party, the ‘U.S. trading firm,’ to buy large amounts of UST to restore its value. When UST’s price went back up as a result of these efforts, defendants falsely and misleadingly represented to the public that UST’s algorithm had successfully re-pegged UST to the dollar.”

According to Terraform Labs, the stablecoin UST would remain fixed at $1 only because of a cutting-edge algorithm. In order to operate as a type of shock absorber for the price of UST, that algorithm was designed to issue and burn LUNA, the speculative sister token of TerraUSD. It was codified in blockchain-based computer code, known as smart contracts.

The SEC argues that, in contrast to autonomous computer code, Terra’s stablecoin ecosystem was sustained by human-driven market-making activities.

Jump Crypto, in accordance with The Block’s sources, was employed by Terraform Labs to act as a market maker for its token ecosystem, the SEC claims. The trading company was often able to purchase LUNA for as low as 40 cents when it was selling for $90 on the open market, according to the terms of the deal, the SEC said.

The ultimate recovery of the TerraUSD stablecoin, which momentarily strayed a few cents from its $1 peg in May 2021, was portrayed by Terraform as evidence of the effectiveness of its algorithm. Yet according to the SEC, the third party’s intervention to surreptitiously purchase Terra’s tokens to support the market sell-off was the only reason the stablecoin was really able to rebound.

The SEC claims that following this sell-off incident, Terra changed its market-making arrangements with the company, reducing the requirements it had to meet in order to acquire discounted tokens.

The SEC charged Terraform Labs and Kwon with soliciting billions of dollars from investors by marketing and selling a linked suite of crypto asset securities, many of which were done so in unregistered transactions, in addition to the charges of the TerraUSD de-pegging. Included in that were mAssets, according to the SEC, which are security-based swaps intended to generate returns by mimicking the price of stocks of US corporations as well as TerraUSD.

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Harold

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