Terraform Labs Sues Jane Street, Accuses Market Maker of Driving TerraUSD/LUNA Collapse
Bankrupt Terraform Labs has filed a lawsuit in Delaware bankruptcy court accusing US market maker Jane Street Group of trading practices that contributed to the May 2022 collapse of algorithmic stablecoin TerraUSD (UST) and its sister token Luna (LUNA). The April 15, 2025 complaint alleges coordinated selling pressure, exploitation of Terra’s mint-and-burn mechanics and other manipulative strategies that amplified UST’s depeg and the ensuing Luna death spiral that erased roughly $40 billion in market value. Jane Street — a major quantitative trading firm managing about $50 billion in assets — is accused of exceeding normal market-making activity and breaching market-integrity duties. The suit forms part of Terraform’s Chapter 11 estate recovery efforts and could recover funds for creditors if causation is proven. Observers say the case broadens liability exposure beyond issuers and exchanges to liquidity providers, raising potential regulatory and compliance changes for crypto market makers, possible reduced liquidity in certain venues, and higher operating costs. The complaint follows earlier SEC fraud charges against Terraform and founder Do Kwon. Outcome uncertainty is high due to complex causation questions; however, a successful claim could set legal precedent for market-maker responsibility in decentralized finance.
Bearish
The lawsuit increases regulatory and legal risk for large liquidity providers and the crypto market more broadly. If market makers face heightened litigation risk or stricter compliance demands, some firms could limit crypto exposure or tighten quotes, reducing liquidity and increasing spreads—conditions that typically weigh on shorter-term price performance and volatility. The case also revives negative sentiment around algorithmic stablecoins and systemic risk from participant behavior, which can depress investor confidence. Historically, litigation and regulatory crackdowns (for example, FTX-related suits and the SEC actions) have produced bearish pressure in crypto markets, especially for assets linked to the case or the same risk class. In the long term, clearer legal standards might improve market stability, but in the near-to-medium term expect increased volatility, spot illiquidity in affected tokens, and cautious positioning by institutional traders.