Terraform Labs Accuses Citadel Securities of Stablecoin Collapse

Terra Classic Do Kwon

Terraform Labs, founded by Do Kwon, has once more accused market maker Citadel Securities of being involved in an alleged deliberate attempt to cause the depegging of its stablecoin in 2022.

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Legal Action to Obtain Documents from Citadel Securities

Terraform Labs initiated a legal move on October 10, filing a motion in the U.S. District Court for the Southern District of Florida. Their aim is to compel Citadel Securities LLC to produce documents related to their trading activities during May 2022. This timeframe is noteworthy because it aligns with the depegging of Terraform Labs’ stablecoin, now known as TerraUSD Classic (USTC).

Screenshot from filing from Terraform compelling Citadel to provide additional documents. Source: courtlistener

The motion contends that this depegging incident in May 2022, which caused the stablecoin’s value to plummet, was not a result of instability in its underlying algorithm. Rather, Terraform Labs argues that the market destabilization was orchestrated by specific third-party market participants intentionally shorting the stablecoin.

In their filing, Terraform Labs refers to “publicly available evidence” suggesting that Ken Griffin, Citadel’s head, may have had plans to short the stablecoin around the time of the depeg. It’s worth noting that Citadel Securities has previously denied any trading of the TerraUSD stablecoin during May 2022.

Crucial Documents for Defense

Terraform Labs underscores the critical importance of these documents in their defense against the lawsuit brought by the U.S. Securities and Exchange Commission (SEC). Filed in February, the SEC’s lawsuit alleges that Terraform Labs, along with its founder Do Kwon, were involved in a significant crypto asset securities fraud.

The success of Terraform Labs’ defense is at stake if Citadel Securities withholds these essential documents. Should the court fail to compel Citadel to release the trading records, Terraform Labs has formally requested that the matter be transferred to the U.S. District Court for the Southern District of New York. There, Judge Rakoff will make a decision on this matter.

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In a related legal development, Terraform Labs had sought permission in July to access data from the now-bankrupt crypto exchange FTX. They believed this information could play a vital role in their defense.


Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.

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