Terraform Labs, the blockchain company founded by Do Kwon, has once again pointed fingers at Citadel Securities, a major market maker, for its alleged role in the intentional depegging of TerraUSD (UST) stablecoin in May 2022. Terraform Labs recently filed a motion in the United States District Court in the Southern District of Florida, demanding that Citadel Securities produce documents related to their trading actions during the destabilization of TerraUSD.
The May 2022 depeg incident saw TerraUSD plummet from $1 to a mere $0.02, leaving many investors and market participants bewildered. Terraform Labs contends that this drastic depeg was not due to any inherent instability in TerraUSD’s algorithm, as originally thought. Instead, they argue that it was the result of a coordinated effort by certain third-party market participants to short the stablecoin, causing it to depeg from its $1 value.
The motion further highlights “publicly available evidence” suggesting that Ken Griffin, the head of Citadel Securities, intended to short TerraUSD around the time of the depeg. This evidence includes a Discord chat screenshot in which a pseudonymous trader claimed Griffin discussed “Soros-ing” Luna UST, possibly alluding to George Soros’ trading strategies focused on highly leveraged, one-way bets.
However, Citadel Securities has previously denied involvement in trading TerraUSD during the critical period in May 2022, according to Forbes.
Terraform’s Defense: Vital Trading Documents at Stake
Terraform Labs asserts that these trading documents are essential for its defense against a lawsuit filed by the U.S. Securities and Exchange Commission in February. The lawsuit accuses Terraform Labs and Do Kwon of orchestrating a multi-billion-dollar crypto asset securities fraud. The company emphasizes that their defense would be significantly compromised if Citadel Securities successfully withholds the requested information.
Should the court decline to compel Citadel Securities to produce the trading documents, Terraform Labs has requested the matter be transferred to the U.S. District Court for the Southern District of New York for a decision by Judge Rakoff.
In a bid to strengthen their defense, Terraform Labs had previously sought permission from a judge to subpoena data from the now-bankrupt crypto exchange FTX, suggesting that this information could also play a crucial role in their legal battle.
The ongoing legal dispute between Terraform Labs and Citadel Securities sheds light on the complexities of the crypto market and the regulatory challenges faced by participants in the digital asset space. As the case unfolds, it will be interesting to see how the court navigates the intricacies of the TerraUSD depeg and the potential involvement of market players in its destabilization.