The Terraform Labs vs. Citadel Showdown: Unpacking the UST Collapse Accusations

Bombolo | News and Media

In recent times, one of the most shocking downfalls in the cryptocurrency industry has been the dramatic fall of UST coins issued by Terraform Labs. The demise of this stablecoin left many in disbelief. Even more astonishing is Terraform Labs' claim that Citadel Securities played a central role in this downfall. Let's delve into the details to understand this unfolding crypto drama.

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Reason Behind the Allegation

On the 13th of October 2023, Terraform Labs took a significant step in its ongoing legal battle against Citadel Securities. In their court filing for a Memorandum of Law, Terraform Labs presented compelling arguments to support their allegation against Citadel. The primary motive behind this allegation was to force Citadel to comply with their requests or, as an alternative, to transfer the trial to the Southern District of New York.

Arguments Presented By Terraform Labs

In Argument I, Terraform Labs emphasized the need for Citadel Securities to produce limited but relevant documentation. They sought papers related to Citadel's trading activity in May 2022. This request is pivotal because it was in May 2022 when the UST stablecoin experienced a severe loss of its peg, dropping from $1 to $0.02.

This significant event was followed by the United States Securities and Exchange Commission (SEC) suing Terraform Labs. The lawsuit accused Do Kwon, the founder of Terraform Labs, and the company itself, of orchestrating a multibillion-dollar crypto asset securities fraud. To defend themselves, Terraform Labs required access to Citadel's records to prove their innocence.

Terraform Labs went further by serving subpoenas to both Citadel Securities and Citadel Enterprise Americas. According to their motion, the destabilization of the market in May 2022, resulting in the depegging of UST, was caused by third-party participants intentionally shorting the stablecoin. Their argument stated, "Movant [Terraform] contends that the market destabilization that occurred did not result from instability in the algorithm underlying the UST stablecoin. 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."

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Can it be a 'Soros Style' Attack?

Adding intrigue to the situation, court documents revealed rumors of Citadel CEO Ken Griffin's involvement in shorting the stablecoin UST. A pseudonymous trader, known as @GiganticRebirth, shared information in a Discord server, claiming that Ken Griffin had plans to "Soros the f*** out of luna ust." This cryptic reference alluded to a "Soros-style attack."

Some observers even went as far as to describe the UST depegging as a "brilliant Soros-style attack." In light of these allegations, Terraform Labs has requested that Citadel provide papers describing any trading strategy involving Terra-Native Tokens or Terra Financial Instruments from March 1, 2022, through May 31, 2022.

Alternative Measure

In the event that their motion to compel Citadel Securities is not accepted, Terraform Labs has requested the case be transferred to the District of Southern New York as an alternative measure.

In conclusion, the cryptocurrency industry's downfall, particularly the UST coins issued by Terraform Labs, is a significant event that has led to legal battles and intriguing allegations. The involvement of Citadel Securities and the suspicions surrounding a 'Soros-style' attack make this case even more perplexing. As this legal drama unfolds, the crypto world watches closely, wondering how this episode will impact the industry's future.

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