Terraform Labs, a defunct crypto network, has made allegations against Citadel Securities, implicating the firm in deliberate actions to undermine the stability of its stablecoin, TerraUSD classic (USTC), in 2022, ultimately leading to the coin’s downfall.
This development comes against the backdrop of ongoing legal troubles facing both Terraform Labs and its founder, Do Kwon.
Terraform Labs’ Accusation and Legal Action
On October 10, Terraform Labs filed a document in the United States District Court in the Southern District of Florida, requesting the court to compel Citadel Securities LLC to provide documents related to its trading activities in May 2022, a critical period when USTC experienced a significant depegging event.
During May of that year, USTC witnessed a dramatic and rapid depegging, losing nearly 70% of its value within hours and eventually plummeting to $0.02 by the end of the month.
Citadel Securities’ Alleged Role
In its legal filing, Terraform Labs references “publicly available evidence” that suggests Ken Griffin, the head of Citadel Securities, had plans to short the stablecoin around the same period.
Terraform Labs representatives stated that they believe the market destabilization was not due to issues with the UST stablecoin’s underlying algorithm but rather the result of deliberate shorting by specific third-party participants.
The documents cite evidence from a Discord chat where an anonymous individual claimed that Griffin intended to employ George Soros’ trading strategies to manipulate Luna UST.
Notably, a Twitter user (@JacobCanfield) with approximately 90,000 followers also tweeted in May 2022, suggesting that “Citadel is the culprit,” lleging that they borrowed 100,000 BTC to open a short position on UST. And initiated the dumping of UST to disrupt its peg.
The court document highlights Citadel’s substantial $61 billion in resources, indicating that the entity possesses the capability to potentially influence markets improperly.
Ongoing Legal Challenges and Subpoenas
Terraform Labs has previously sought court permission to obtain data from the defunct exchange FTX as part of its legal case and defense strategy.
Meanwhile, Do Kwon, the founder and former executive of Terraform Labs, faces legal issues, including a multi-billion dollar fraud case. Kwon was imprisoned for four months in Montenegro in June for the forgery of travel documents. However, more significant legal challenges await him in the United States and South Korea.
In a recent development, a group of investors who initially initiated a class-action lawsuit against Do Kwon and Terraform Labs has dropped their case, reducing Terra’s legal liabilities.