Terraform Labs has recently made allegations against Citadel Securities, suggesting that the latter played a significant role in the collapse of its TerraUSD (UST) stablecoin in 2022.
In May 2022, Terraform Labs’ stablecoin, known as TerraUSD Classic (USTC), experienced a drastic depegging, where its value plummeted from $1 to a mere $0.02. The company has since been adamant that this depegging was not due to any instability in its algorithm. Instead, they believe that “certain third-party market participants” intentionally shorted the stablecoin, leading to its devaluation.
Allegations Against Citadel Securities
Terraform Labs has pointed fingers at market maker Citadel Securities, accusing them of a “concerted, intentional effort” to cause the depegging of its TerraUSD stablecoin. On October 10, Terraform Labs filed a motion in the United States District Court in the Southern District of Florida. Through this motion, they sought to compel Citadel Securities to produce documents related to its trading actions around the time of the depegging.
Furthermore, Terraform Labs has presented “publicly available evidence” suggesting that Ken Griffin, the head of Citadel Securities, had intentions to short the stablecoin around the time of its depegging. This evidence includes a screenshot from a Discord channel chat where a trader claimed to have had lunch with Griffin. During this alleged meeting, Griffin supposedly remarked, “They were going to Soros the f*** out of Luna UST,” possibly alluding to George Soros’ trading strategies.
However, it’s worth noting that Citadel Securities has previously denied any involvement in trading the TerraUSD stablecoin during that period.
Citadel Securities Fined Recently for market manipulation:
South Korea’s financial regulator, the Financial Services Commission (FSC), has fined U.S.-based Citadel Securities 11.88 billion won (approximately $9.66 million). The fine was imposed because the regulator believes that Citadel Securities disrupted the local stock market through high-frequency algorithm trading according to this Reuters article.
The FSC stated that Citadel Securities distorted stock prices using artificial factors, such as placing orders on the “immediate or cancel” condition and by filling gaps in bid prices. The firm reportedly engaged in such trading practices on an average of 1,422 stocks daily from October 2017 to May 2018, amounting to over 500 billion won worth of trades.
Citadel Securities expressed surprise and concern regarding the regulator’s findings, especially since they were not invited to certain hearings and were not privy to specific expert evidence.
Implications for Terraform Labs
These allegations and the subsequent motion come at a crucial time for Terraform Labs. The U.S. Securities and Exchange Commission filed a lawsuit against them in February, accusing the company and its founder, Do Kwon, of “orchestrating a multi-billion dollar crypto asset securities fraud.” Terraform Labs argues that the documents from Citadel Securities are vital for their defence in this lawsuit. They believe their defence would be significantly hampered if Citadel Securities withholds this information.
If the court does not compel Citadel to produce the requested trading documents, Terraform Labs has requested that the matter be transferred to the U.S. District Court for the Southern District of New York for a decision by Judge Jed Rakoff.
This is an ongoing story and here at allincrypto.com we will keep you up to date on the latest and greatest things crypto!