Terraform Labs Claims Third-Parties Caused USTC Collapse: Filing

• Terraforms filed a motion requesting the court to compel Citadel to produce its May 2022 trading documents.
• The company claimed Citadel CEO Ken Griffin intended to short the stablecoin around the time it collapsed.
• Terraform said the TerraUSD collapse resulted from a concerted effort of third-market participants.

Terraform Labs filed a motion in the U.S. District Court for the Southern District of Florida on October 10 to seek permission to look into the trading books of Citadel Securities. The company has once again leveled an allegation that Citadel, an American market-making firm, was behind the TerraUSD collapse.

In particular, Terraform has approached the court to compel Citadel to provide documents on its trading actions in May 2022, when TerraUSD (UST) collapsed. Terraform argued that the stablecoin’s collapse was not an algorithmic failure but a result of deliberate and concerted “third-party market participants” efforts.  

The filing mentioned Kenneth Griffin, CEO of Citadel, and said, “Raders active in cryptocurrency markets received information, or accessed rumors, that Ken Griffin and/or Citadel were seeking to short UST.” Moreover, the filing contained a Discord channel snapshot of a conversation with a trader who claimed to have spoken to Griffin.

Griffin allegedly said he was going to aggressively short Luna UST using a highly leveraged trading technique. While Citadel Securities reportedly denied previous allegations, the company has yet to make any statements so far.

“This defense will be substantially impaired if Citadel Securities is successful in withholding this limited information,” Terraform said in the filing. It continued that if the court rejects the filing requests, Terraform asks that the matter be transferred to the U.S. District Court for the Southern District of New York for a decision by Judge Rakoff.

The May 2022 depeg of TerraUSD and the consequent wipe-out of over $40 billion kicked off the crypto winter. Following the collapse, the company and its key executives, especially Founder Do Kwon, came under regulatory scrutiny.

Despite the company’s claims, reports suggested that the troubled founder of the blockchain, Do Kwon, knew about the collapse beforehand. Terraform is currently embroiled in a lawsuit with the U.S. Securities and Exchange Commission over the collapse.