Is SBF behind Terra’s collapse?

Following the ongoing investigations concerning the demise of FTX, previously one of the largest cryptocurrency exchanges, prosecutors are also weighing the possibility that the founder of FTX, Sam Bankman-Fried (SBF), could be responsible for Terra’s collapse, which wiped out over $40 billion in market capitalization. 

People familiar with the matter revealed on Wednesday that the United States prosecutors in Manhattan are currently investigating whether FTX’s founder played a role in the collapse of Terra’s cryptocurrency asset – Luna and UST – in order to benefit his crypto businesses, including the trading company, Alameda Research. 

As NY Times reported, the ongoing investigation is part of the broader probe from authorities into the collapse of the FTX exchange in November. The crypto exchange and its founder have since been accused of commingling and mishandling customers’ assets, resulting in a shortfall in its balance sheet of about $10 billion. 

Although Sam Bankman-Fried faces civil lawsuits from FTX clients, the former CEO hasn’t been faulted for any wrongdoing yet by prosecutors, and Bankman-Fried has not been arrested. However, the ongoing Terra investigations could add to the legal storm ranging over SBF, especially if prosecutors find him guilty of Terra’s collapse.

Do Kwon believes SBF caused Terra’s collapse?

While commenting on the Terra investigations on SBF, the fugitive founder of Terraform Labs, Do Kwon, gave more claims that seemingly blame FTX’s founder and Alameda Research for Terra’s collapse. 

In a Twitter thread, Kwon said that Genesis Trading, which is apparently struggling with liquidity now, had bought about $1 billion UST, Terra’s algorithmic stablecoin, from Luna Foundation Guard (LFG). According to Kwon, Genesis acquired the tokens amid an “interest to participate in the Terra Defi ecosystem.” However, he believes Genesis may have provided the tokens to SBF and Alameda, who shortly sold the tokens on Curve pool thereby causing UST depeg.

“I think the time has come for Genesis Trading to reveal if they provided the $1B UST shortly before the crash to SBF or Alameda,” Do Kwon tweeted. “The [Genesis’ UST] purchase from LFG was represented as stemming from ‘interest to participate in the Terra Defi ecosystem’ – not to provide ammo for a peg attack.”

Kwon also asserted that during UST depeg dates, SBF’s trading company Alameda borrowed 9 figures in Bitcoin from the now-bankrupt Voyager Digital, and even urged other large crypto companies to borrow higher figures. More like a claim, he asked whether the funds were used to short Bitcoin to handicap Luna Foundation Guard’s reserve, which significantly dominated in Bitcoin before the depeg.

Terraform Labs may have attacked itself

Do Kwon’s narrative tends to suggest that Terra’s collapse was a result of a coordinated attack by companies that possibly may include Alameda. However, on-chain information suggests that Terraform Labs, the development company behind Luna and UST stablecoin, started the selling pressure which eventually crashed the ecosystem.

An anonymous researcher who called Hodlnaut’s insolvency disclosed that Terraform Labs started UST depeg by dumping numerous amounts of UST, just days before the stablecoin depegged. Seeing the liquidity being drained, other large holders of UST also began offloading their holdings, which collectively resulted in the crash of UST. 

UST’s depeg also affected the sentiment on its sister token Luna, which dropped by more than 95% in May. The incident spurred a cascade of collapse, especially on lending platforms, whilst plunging the value of Bitcoin and the sentiment on the majority of the crypto market.