Crypto Waterloo of Jump Trading: Forced to withdraw from the U.S. crypto trading market, Terra class action lawsuit

For Jump Trading, a traditional high-frequency trading giant that dominates the encryption circle, the past year was undoubtedly a year in which it encountered Waterloo many times since its high-profile entry into the encryption industry and the launch of Jump Crypto in 2021.

Written by: Joy, PANews

For Jump Trading, a traditional high-frequency trading giant that dominates the encryption circle, the past year has undoubtedly been a year of Waterloo many times since its high-profile entry into the encryption industry and the launch of Jump Crypto in 2021.

From the cross-chain bridge Wormhole being hacked to Terra’s death spiral, to the FTX thunderstorm, and the heavily damaged Solana ecology, Jump Crypto suffered serious financial losses. Recently, Jump Trading was exposed to withdraw from the encryption trading market in the United States due to tightening regulations. In addition, it was also sued by Terra investors, and was confirmed by the SEC to have made nearly $1.3 billion in profits from Terra transactions.

Class action accuses Jump of helping Terra anchor back

Following the FTX debacle, U.S. policymakers and regulators have stepped up oversight of the crypto industry. Recently, according to Bloomberg, citing people familiar with the matter, as regulators crack down on the encryption industry, market makers Jump Trading and Jane Street are withdrawing from the cryptocurrency trading market in the United States. It is reported that the two companies still provide market-making services and have not completely abandoned the encryption industry. But Jump Trading's digital asset trading arm, Jump Crypto, is exiting the U.S. market, but it still plans to expand internationally.

At the same time, a class action lawsuit against Jump Trading also pushed it to the forefront of public opinion.

Taewoo Kim, a resident of New Jersey, USA, filed a lawsuit on behalf of affected investors on May 9, claiming that Jump Trading was an early partner and financial backer of the collapsed stablecoin project Terraform Labs, believing that it was involved in a fraudulent scheme involving Terra. It played a role, resulting in losses of at least $40 billion for investors who put their money into related cryptocurrencies.

Beginning around November 2019, a series of agreements were negotiated between former Terraform CEO Do Kwon and Jump, the suit alleges. This included Terraform lending 30 million LUNA tokens to Jump, enabling them to provide market making services for LUNA and UST. In return, Jump is said to be entitled to compensation, which includes a heavily discounted LUNA token.

In fact, one year before Terra's crash in May 2022, on May 19, 2021, UST once broke its anchor and fell by 10%. On May 23 of that year, Kwon and Jump conspired to artificially inflate the price of UST and aUST, the token used on Terra’s lending platform Anchor, the suit alleges. Between May 23 and May 27, 2021, Jump Trading bought over 62 million UST tokens. The transactions were carried out on multiple cryptocurrency trading platforms to conceal Jump's manipulation. Therefore, investors believe that Jump's behavior helped Terra temporarily restore the illusion that UST was pegged to $1.

Kwon also said after the incident that UST’s reanchor illustrates the self-healing ability of their calculation mechanism and the 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, which misled many investors to trust Terra. But to everyone's surprise, behind this so-called self-healing is actually institutional manipulation.

SEC accuses Jump of nearly $1.3 billion in Terra deal

The U.S. Securities and Exchange Commission (SEC) filed a civil lawsuit against Terraform Labs and Do Kwon in February of this year, alleging that they used a "U.S. trading institution" to support the price of UST in May 2021 to mislead investors. Then The block reported that Jump Trading was the trading organization charged by the SEC.

In a recent class-action lawsuit, SEC court documents state that Terraform began working with the trading firm around November 2019. The company provides market-making services for Luna and UST for compensation, and it is usually able to acquire Luna at a lower cost than the current market price. After the trading firm stepped in to help shore up UST in May 2021, Terraform and Jump signed an agreement in July 2021 to transfer 61.4 million LUNAs to Jump at a fixed price of $0.40 per token. The arrangement will remain in effect for the next four years regardless of LUNA's actual market value, which peaked at $116 on the secondary market, an arrangement the SEC says netted Jump $1.28 billion. Now looking back at the historical market of LUNA, it was after July 2021 that LUNA began to rise crazily all the way.

It is such a deep interest relationship that made Jump continue to increase its stake in Terra. Jump seems to have realized that it is difficult to maintain the anchor of UST with LUNA alone. Therefore, in February 2022, it led the $1 billion financing of the Terra ecology LUNA Foundation Guard (LFG), and suggested creating a Bitcoin reserve pool to defend the stability of Terra. The value anchor of the currency UST. It's just that everything didn't have enough time, and Terra collapsed quickly three months later. But even in Terra's peril. Jump still promised to provide financial support for LFG, but the financing should not have been in place, and Terra quickly died under the spiral stampede.

It is worth mentioning that during the FTX thunderstorm incident, insiders pointed out that Alameda and Jump are colluding to raise Serum's fully diluted valuation (FDV) to a price that exceeds its actual value, so as to facilitate the use of Serum Mortgage to obtain more liquidity funds.

Do Kwon is currently out on bail in Montenegro, where he awaits trial on charges of attempting to use a forged Costa Rican passport. Both the United States and South Korea are seeking his extradition. Jump did not respond to media requests for comment. Jump Trading’s digital asset trading arm, Jump Crypto, is planning to expand internationally and withdraw from the U.S. market due to the recent heightened regulatory pressure, according to Bloomberg.

The Waterloo of Jump and Terra is also the Waterloo of the entire encryption market. The encryption world advocates transparency and decentralization, while insider trading and manipulation by large institutions maintain superficial prosperity. Although one day they will reap the fruits of themselves, they will also allow more ordinary investors to pay and even be buried with them.