Terraform Labs Reveal Who Was Behind the UST Depeg and $40 Billion Collapse

Last year in mid-2022, the Terra (LUNA) ecosystem faced a brutal collapse eroding $40 billion of investors’ money. In an interesting revelation, Terraform Labs said that the massive de-peg of its UST stablecoin wasn’t an algorithmic failure. Instead, it blames Citadel Securities for its role in a “concerted, intentional effort” to cause the depreciation of the stablecoin.

Terraform Labs Blames Citadel Securities

Earlier this week on October 10, Terraform Labs filed a motion in the U.S. District Court for the Southern District of Florida. The motion seeks to compel Citadel Securities to produce documents relating to its trading actions in May 2022.

Terraform claims that the detachment of its stablecoin from its peg in May 2022, resulting in a drop from $1 to $0.02, was a deliberate act by “certain third-party market participants” who engaged in short-selling the stablecoin, rather than stemming from algorithmic instability. The company’s motion asserts that the market disruption was not due to any instability within the UST stablecoin’s underlying algorithm. The filing notes:

“Instead, Movant contends that the market was destabilized due to the concerted, intentional effort of certain third party market participants to “short” and cause UST to depeg from its one dollar price.”

Citadel Securities Was Shorting USDT

Furthermore, the motion references “publicly available evidence” that suggests Citadel CEO Ken Griffin had intentions to short the stablecoin during the period of the de-peg in May 2022.

The filing from Terraform includes a screenshot from a chat within a Discord channel where a trader, operating under a pseudonym, claimed to have had a conversation with Griffin. According to the chat, Griffin allegedly mentioned, “They were going to Soros the f*** out of Luna UST,” presumably alluding to the trading strategies of George Soros, which involve heavily leveraged one-directional bets.

However, Citadel Securities had previously denied trading the UST stablecoin in May 2022. Some reports also suggested that Terra’s disgraced founder Do Kwon knew about the stablecoin collapse beforehand. The Southern District of Florida has not yet issued a response to the submission made on October 10th.