Original author: Joy, PANews
For Jump Trading, the traditional high-frequency trading giant that dominates the encryption circle, the past year has undoubtedly been a year of repeated failures since its high-profile entry into the encryption industry in 2021 and the launch of Jump Crypto.
From the cross-chain bridge Wormhole being hacked, to Terra’s death spiral, to the FTX thunderstorm, and the serious damage to the heavily held Solana ecosystem, Jump Crypto suffered serious financial losses. Recently, Jump Trading was revealed to have withdrawn from the U.S. crypto trading market due to tightening regulations. In addition, it was subject to a class action lawsuit from Terra investors, and was confirmed by the SEC to have made nearly $1.3 billion in profits from Terra transactions.
Class-action lawsuit alleges Jump helped Terra return to anchor
After the collapse of FTX, U.S. policymakers and regulators have stepped up their oversight of the crypto industry. Recently, Bloomberg cited people familiar with the matter as saying that as regulators intensify their crackdown on the crypto industry, market makers Jump Trading and Jane Street are withdrawing from the U.S. cryptocurrency trading market. It is reported that the two companies still provide market making services and have not completely abandoned the crypto industry. But Jump Crypto, the digital asset trading division of Jump Trading, is withdrawing from the U.S. market, but it still plans to expand internationally.
At the same time, a class action lawsuit against Jump Trading also put it at the center of public opinion.
Taewoo Kim, a resident of New Jersey, filed a lawsuit on May 9 on behalf of affected investors, claiming that Jump Trading was an early partner and financial backer of the collapsed stablecoin project Terraform Labs, and believed that it played a role in a fraud scheme involving Terra, causing investors who invested their funds in related cryptocurrencies to lose at least $40 billion.
The lawsuit alleges that, beginning in or around November 2019, a series of agreements were negotiated between former Terraform CEO Do Kwon and Jump. These included Terraform lending 30 million LUNA tokens to Jump, enabling them to provide market making services for LUNA and UST. In return, Jump was allegedly entitled to compensation, including LUNA tokens at a significant discount.
In fact, a year before Terra collapsed in May 2022, UST had an unpegged fall of 10% on May 19, 2021. The lawsuit alleges that on May 23 of that year, Kwon and Jump conspired to artificially inflate the prices of UST and aUST (the token used on Terra's lending platform Anchor).
Between May 23 and May 27, 2021, Jump Trading bought more than 62 million UST tokens. These trades were conducted on multiple cryptocurrency trading platforms to cover up Jump's manipulation. So investors believe that Jump's actions helped Terra temporarily restore the illusion that UST is pegged to $1.
Kwon also said after the incident that UST’s anchoring back demonstrated the self-healing ability of their stabilization mechanism and its ability to maintain a stable peg to the US dollar. This incident also made many people think that it was a verification and proof of the strength of the UST mechanism, misleading many investors to trust Terra. But to everyone’s surprise, this so-called self-healing was actually manipulated by institutions.
SEC alleges Jump made nearly $1.3 billion in Terra trade
The U.S. Securities and Exchange Commission (SEC) filed a civil lawsuit against Terraform Labs and Do Kwon in February of this year, accusing them of using a "U.S. trading agency" to support the price of UST in May 2021 to mislead investors. Subsequently, The block reported that Jump Trading was the trading agency accused by the SEC.
In a recent class action lawsuit, the SEC's court documents pointed out that Terraform began working with the trading company around November 2019. The company provided market making services for Luna and UST for compensation, and it was often able to obtain Luna at a cost lower than the current market price.
After the trading firm stepped in to help support UST in May 2021, Terraform and Jump signed an agreement in July 2021 to transfer 61.4 million LUNA to Jump at a fixed price of $0.4 per token. The arrangement will remain in effect for the next four years, regardless of LUNA's actual market value. LUNA has reached a high of $116 in the secondary market, and the SEC claims that the arrangement netted Jump $1.28 billion. Looking back at LUNA's historical market today, it was after July 2021 that LUNA began its crazy rise.
It is precisely this deep interest relationship that has led Jump to continue to increase its investment in Terra. Jump seems to have long realized that it is difficult to maintain the anchoring of UST by relying solely on LUNA, so in February 2022, it led the US$1 billion financing of Terra's ecosystem LUNA Foundation Guard (LFG) and suggested defending the value anchoring of Terra's stablecoin UST by creating a Bitcoin reserve pool.
It was just too late, and Terra collapsed three months later. But even at the critical moment of Terra, Jump still promised to provide financial support to LFG, but the financing should not have been in place, and Terra quickly died in the spiral stampede.
It is worth mentioning that in the FTX crash incident, insiders pointed out that Alameda and Jump were conspiring to raise the fully diluted valuation (FDV) of Serum to a price beyond its actual value, in order to facilitate the use of Serum for collateral to obtain more liquidity funds.
Do Kwon is currently on bail in Montenegro, where he awaits trial on charges of trying to use a forged Costa Rican passport. Both the United States and South Korea are seeking his extradition. Jump did not respond to a request for comment from the media. According to Bloomberg, Jump Trading's digital asset trading unit Jump Crypto is planning to expand internationally and exit the U.S. market due to recent regulatory pressure.
The Waterloo of Jump and Terra is also the Waterloo of the entire crypto market. The crypto world advocates transparency and decentralization, while insider trading and manipulation by large institutions maintain superficial prosperity. Although it will eventually backfire, it also makes more ordinary investors pay the bill or even be buried with it.
