Terraform Labs Sues Jump Trading for $4B Over Terra Collapse

The core of the lawsuit, filed by court-appointed plan administrator Todd Snyder, centers on a series of undisclosed agreements between Jump Trading and Terraform Labs dating back to 2019. According to the complaint, these arrangements granted Jump the exclusive option to purchase massive quantities of LUNA tokens at prices significantly below market value. This preferential access allegedly positioned Jump to extract immense value from the ecosystem before its implosion. The lawsuit further accuses Jump of striking a clandestine “gentlemen’s agreement” to artificially support the peg of the algorithmic stablecoin TerraUSD (UST) during a critical de-pegging event in May 2021.

During that May 2021 crisis, the complaint alleges Jump Trading purchased tens of millions of UST tokens to restore its 1:1 dollar peg. Following this intervention, Terraform Labs and Jump Trading publicly touted the recovery as a triumphant validation of UST’s algorithmic design. However, the lawsuit contends this narrative was a deliberate misrepresentation, as Jump’s proprietary trading activity—not the underlying algorithm—was responsible for stabilizing the stablecoin. This alleged deception, the administrators claim, helped conceal fundamental structural weaknesses in UST, misleading investors about its true risk profile.

Following the 2021 de-pegging episode, the lawsuit alleges Jump Trading negotiated pivotal changes to its contracts with Terraform Labs. These revisions reportedly removed vesting restrictions on the LUNA tokens Jump held, allowing the firm to immediately receive and liquidate its holdings. Empowered by this renegotiated access to discounted tokens and the new ability to sell them rapidly, Jump Trading is accused of selling billions of dollars worth of LUNA into the open market. The administrators argue this activity constituted self-dealing and misuse of assets, enriching Jump at the direct expense of the Terra ecosystem and its investors.

The house of cards finally collapsed in May 2022 when TerraUSD irrevocably lost its dollar peg. Without the alleged covert support from entities like Jump Trading, the algorithmic mechanism linking UST and LUNA failed catastrophically. The resulting death spiral wiped out over $40 billion in value from UST and LUNA, devastating retail investors worldwide. The contagion spread rapidly through the crypto industry, contributing to a wave of insolvencies that culminated months later in the collapse of the FTX exchange, deepening the sector’s crisis.

The $4 billion lawsuit against Jump Trading, its co-founder William DiSomma, and former Jump Crypto president Kanav Kariya represents a significant effort to claw back funds for Terraform’s creditors. It follows other major legal actions, including Terraform Labs’ January 2024 bankruptcy filing and its recent agreement to pay approximately $4.5 billion to settle a civil securities fraud case with the U.S. Securities and Exchange Commission (SEC). The action seeks to hold a major institutional player, rather than just the project’s founders, accountable for its role in the disaster.

This legal offensive unfolds against the backdrop of escalating penalties for the project’s leadership. Earlier this month, Terraform Labs co-founder and former CEO Do Kwon was sentenced to 15 years in a U.S. prison, and he still faces a potential separate criminal trial in South Korea. The lawsuit against Jump Trading amplifies the narrative that the Terra collapse was facilitated not only by flawed design and promotional hype but also by the alleged exploitative actions of sophisticated financial partners who understood and manipulated the system’s vulnerabilities for profit, leaving ordinary investors to bear the ultimate losses.