Jane Street sold $192 million UST right before Terra crash

A private communication channel under scrutiny

According to portions of the court filing recently made public by the court-appointed liquidator of Terraform Labs, Jane Street leveraged a private Telegram chat to gain a crucial market advantage. This invitation-only channel connected Bryce Pratt, a former Terraform Labs intern and then Jane Street employee, with his previous colleagues at Terraform Labs.

The documents claim Jane Street was able to offload its TerraUSD holdings at rates close to par through this communication network, subsequently opening short positions and ultimately profiting around $134 million from the $40 billion Terra ecosystem collapse. One of its largest transactions allegedly occurred on May 7, 2022, when Jane Street sold 85 million UST via the decentralized finance protocol Curve Finance. Notably, that sale took place just nine minutes after Terraform Labs withdrew 150 million UST from the same Curve pool.

While experts have long debated this major Curve trade’s role in Terra’s downfall, new evidence in the court record directly attributes the transaction to Jane Street’s wallet.

Revealing company communications

Internal messages cited in the documents include a remark from Pratt to team members, joking that it felt “mildly satisfying” to hold an informational edge. Further, when blockchain analytics firms reportedly flagged Jane Street’s wallets, employees expressed concerns internally about whether those wallets should now be moved out of use.

A statement submitted to the court on Jane Street’s behalf refuted the lawsuit’s premise:

“Although it is widely known that the losses incurred by Terra and Luna investors were primarily due to a multibillion-dollar fraud orchestrated by Terraform Labs management, this lawsuit is a transparent effort to extract money from Jane Street. As we noted in our recent motion to dismiss, we will vigorously defend ourselves against these opportunistic and unfounded accusations.”

The suit also names Jane Street co-founder Robert Granieri and trader Michael Huang as defendants. Allegations include violations of federal securities laws and the Commodity Exchange Act. Plaintiffs are seeking restitution of profits and compensation for creditor losses.

Mini glossary: Jane Street is a major global trading firm specializing in high-frequency trading across diverse financial assets, including Treasury bonds, equities, and cryptocurrencies. The company is widely recognized for playing a pivotal role in global market liquidity.

Impact of court rulings

In 2023, a separate federal case in the US, involving the Securities and Exchange Commission, ruled that UST and Luna constituted securities. This determination strengthens the current lawsuit’s legal basis.

Fresh revelations and connections

The lawsuit also discloses that just five days after UST’s depeg on May 18, 2022, Jane Street offered a job to Terraform Labs’ head of research, who reportedly joined the firm two weeks later.