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Wednesday, November 29, 2023

Terraform Labs Accuses Citadel Securities of Destabilizing its UST Stablecoin

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In the latest twist, Terraform Labs, a defunct crypto network, is accusing Citadel Securities of participating in intentional efforts to destabilize its stablecoin TerraUSD classic (USTC) in 2022, eventually leading to its demise.

This comes as both Terraform Labs and its founder, Do Kwon, continue to face legal troubles.

Terraform Labs Accusing Citadel

In a document filed in a United States District Court in the Southern District of Florida on Oct. 10, the defunct crypto network asked the court to compel Citadel Securities LLC to produce documents related to its trading activities in May 2022, when USTC depegged.

USTC plunged dramatically last May, losing its peg by nearly 70% in mere hours and eventually crashing to $0.02 later that month. While there were claims of instability in the algorithm initially, Terraform now claims that the plunge was mainly because of some third-party market participants.

In its documentation, Terraform cites “publicly available evidence” suggesting that the head of Citadel Securities, Ken Griffin, planned to short the stablecoin around that time.

A representative of Terraform Labs noted,

“We contend that the market destabilization did not result from instability in the algorithm underlying the UST stablecoin. Instead, certain third-party market participants intentionally shorted it, causing it to depeg from its one dollar price.”

The report mentioned evidence from a Discord chart where an anonymous individual claimed that Griffin planned to use George Soros’ trading strategies on Luna UST.

Soon after UST’s troubles in early May 2022, an X (Twitter) user @JacobCanfield, who now has about 90K followers, tweeted on May 9 that the “[r]umor is citadel is the culprit” through borrowing 100K BTC and using it to open a short position on UST. They later started dumping UST to make it lose its peg.

The document mentions that Citadel’s $61 billion in resources makes the entity large enough to attempt to move the markets improperly. The court document highlighted a case earlier this year where Citadel was fined $9.66 million in South Korea for high-frequency algorithmic trading.

Past Subpoenas and Ongoing Cases

In the past, Terraform Labs has asked court permission to obtain data from defunct exchange FTX to build its case and defense.

The developments arise even as Do Kwon, the founder and former executive of the failed network, faces a legal case of multi-billion dollar fraud. The ex-crypto KOL was jailed for four months in Montenegro in June for forgery of travel documents. However, more significant problems await him in the U.S. and South Korea.

Earlier this month, a group of investors who initially launched a class action lawsuit against Do Kwon and Terraform Labs dropped their case, reducing Terra’s legal issues.

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