Jane Street Accused of "Front-Running" Terra: Insider Trading Triggered $40 Billion USD Collapse?

The 2022 collapse of Terraform Labs — one of the most serious incidents in crypto history — continues to reveal new details as high-frequency trading firm Jane Street is accused of insider trading, accelerating the fall of the Terra ecosystem.

According to a lawsuit filed by Todd Snyder, the asset liquidation manager at Terraform Labs, Jane Street, co-founder Robert Granieri, and two employees, Bryce Pratt and Michael Huang, used non-public material information to execute front-running trades, profiting before negative news was made public.

Terraform Labs was founded in 2018 by Do Kwon and Daniel Shin, known for the Terra blockchain, the LUNA token, and the algorithmic stablecoin TerraUSD (UST). In May 2022, UST lost its peg to the USD, causing LUNA to plummet to nearly zero within days, wiping out about $40 billion in market capitalization in a week and triggering a domino effect that led to the bankruptcy of many other crypto companies.

According to the lawsuit, the incident began on May 7, 2022, when Terraform secretly withdrew 150 million UST from the Curve3pool liquidity pool. Just 10 minutes later — before any information was publicly announced — a wallet believed to be linked to Jane Street withdrew an additional 85 million UST from the same pool. This action is accused of triggering a market panic.

The next day, Do Kwon explained that the withdrawal was only to transfer liquidity to a new pool for the stablecoin. However, market confidence was already lost. By May 9, as UST started to depeg sharply, Bryce Pratt allegedly contacted the Terraform team, proposing to buy Bitcoin or LUNA.

Jane Street denied all allegations, calling them a “desperate” attempt to extract money from the company, and stated that the losses suffered by Terra and LUNA investors resulted from “a multi-billion dollar fraud orchestrated by Terraform Labs leadership.”

Terraform Labs filed for bankruptcy in January 2024. Later that year, a liquidation fund took over asset management. Do Kwon was subsequently sentenced to 15 years in prison after pleading guilty to two criminal charges in August.

The new lawsuit raises significant questions about transparency and the relationship structure between traditional trading organizations and crypto projects. If proven, this could become one of the most important cases related to insider trading in the digital asset market.