Terraform Labs has submitted a legal request demanding Citadel Securities to produce documents. These records, according to Terra, may reveal the market maker’s involvement in the previous year’s instability of the TerraUSD (UST) stablecoin.
The difficulties faced by Terraform Labs had significant repercussions on the crypto sector, leading to market uncertainties. The issue initially stemmed from the instability of the algorithmic stablecoin, UST, which subsequently impacted other crypto initiatives.
Terraform Labs’ Request for Citadel’s Trading Records
According to the legal documents, Terraform Labs is requesting the court to direct Citadel to disclose specific records related to the market maker’s trading actions. Terraform Labs asserts these records are pivotal for its defense in a case with the United States Securities and Exchange Commission (SEC).
In early 2023, the SEC charged Terraform Labs and its previous CEO, Do Kwon, with market manipulation and fraudulent activities. The SEC contends that Terraform Labs’ misleading actions contributed to the downfall of the Terra (LUNA) ecosystem.
Yet, Terraform Labs counters this argument, suggesting that the downturn was a result of aggressive short-selling activities by market makers, including Citadel. The firm further points to data from blockchain analyst company, Nansen, hinting that a mere seven influential traders might have induced the UST stablecoin’s instability.
The court records note:
“Cryptocurrency analytics entity, Nansen, has provided data indicating the May 2022 instability was triggered by merely seven influential ‘whale’ traders. These traders, with substantial resources, often undertake significant long or short positions in assets or financial instruments. Nansen’s on-chain research discerned that a limited group of entities detected flaws during the early stages of the UST instability.”
Possible Planned Attack on UST?
There’s also mention in the court documents of whispers about Citadel CEO Ken Griffin’s intention to short the UST stablecoin. Allegedly, a trader under the pseudonym @GiganticRebirth disclosed in an online chat:
“My meetings with Ken Griffin occur bi-monthly… during one such meeting, he indicated a potential plan to heavily short luna ust.”
Renowned trader/investor George Soros made headlines in 1992 for heavily shorting the British pound, causing significant financial repercussions. Some market watchers theorize that the UST instability might have been a calculated move, reminiscent of Soros’ strategy.
Given these circumstances, Terraform Labs is pursuing records from Citadel that detail any trading strategies related to Terra-native tokens or financial instruments from March to May 2022.