As the US Securities and Exchange Commission formally filed a fraud complaint against Terraform and its co-founder and CEO DO Kwon last month, it cited a then-unnamed American trading firm that had an exclusive arrangement with the firm behind the UST stablecoin. Now, however, sources who have pleaded anonymity identified the said firm as Jump Crypto.
An active entity in the Terra ecosystem, Jump Crypto bought a number of luna tokens, the asset supporting the UST stablecoin, at a huge discount. Initially, Jump deployed around $62 million back in May 2021 in order to keep the price of UST within the $1 range. However, it turned out that the firm earned a total of $1.28 billion after it sold off discounted tokens it bought according to terms it agreed upon with Terraform Labs.
Prior to the SEC complaint against Terraform and its founder, Jump Crypto was known to post governance proposals in the Terra ecosystem. The company also invested heavily into Do Kwon’s initiative as it was one of the firms that took the lead in raising the $1 billion seed fund for the Luna Foundation Guard which served to protect Terra’s massive bitcoin reserves. Jump also built a Terra cross-chain bridge, and its president Kanav Kariya was on the Luna Foundation Guard board.
However, Terraform’s bitcoin reserves were depleted in May of last year when the company failed to restore UST to within the dollar range. It was also discovered that the said reserves were transferred to a Swiss bank account under Kwon’s name.
What Exactly was Jump Crypto’s Involvement Here?
Based on the SEC complaint, Terraform Labs is said to have recruited a third-party trading firm (allegedly Jump Crypto according to insiders) as a market maker for the Terra ecosystem. Based on the agreement between Terraform and the said trading company, the latter could buy luna for just 40 cents per token even as it traded at $90 elsewhere.
In May 2021, UST veered a few cents away from its dollar peg and Terraform spun the story as evidence that its algorithm could be used successfully. However, it was discovered that UST’s recovery was actually due to the trading firm’s covert purchase of Terra tokens to backstop a sell-off.
Terra likewise modified the market-making agreement following the sell-off. Any previously agreed-upon preconditions necessary for the purchase of discounted tokens were effectively removed from the document.
However, it has yet to be confirmed if Jump Crypto really is the firm in question.