Terraform Labs Accuses Citadel of Intentional Devaluation

Terraform Labs, which was founded by Do Kwon, has once again pointed the finger at Citadel Securities for its alleged role in a “concerted, intentional effort” to cause the depreciation of its stablecoin in 2022.

Terraform Labs filed a motion in the U.S. District Court for the Southern District of Florida on October 10 to compel Citadel Securities LLC to produce documents relating to its trading actions in May 2022, around the time Istablecoin, now known as TerraUSD Classic (USTC), depegged.

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

It asserts that the depeg that occurred in May 2022, when the asset fell from $1 to $0.02, was caused by “certain third-party market participants” intentionally shorting the stablecoin, as opposed to algorithmic instability.

In its motion, the company stated, “Movant [Terraform] contends that the market destabilization that occurred was not the result of 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.”

Additionally, the motion cites “publicly available evidence” indicating that Citadel CEO Ken Griffin intended to short the stablecoin around the time of the depeg.

“There is publicly available evidence suggesting that the head of the Citadel Entities, Ken Griffin, intended to short UST at or about the time of the May 2022 depeg.”

The filing cited a screenshot from a Discord channel chat in which a pseudonymous trader had lunch with Griffin, who allegedly said, “They were going to Soros the f*** out of Luna UST,” presumably about the trading strategies of George Soros, which are concentrated on highly leveraged, one-way bets.

Forbes reports that Citadel Securities has previously denied trading the TerraUSD stablecoin in May 2022. In its motion, Terraform contends that the documents are essential to its defense in the lawsuit filed by the U.S. Securities and Exchange Commission in February.

Which alleges that Terraform Labs and its founder, Do Kwon, were involved in “orchestrating a multi-billion dollar crypto asset securities fraud.”

“This defense will be significantly weakened if Citadel Securities can withhold this limited information,” the document stated.

If the court refuses to order Citadel to produce the trading documents, Terraform has requested that the case be transferred to the U.S. District Court for the Southern District of New York, where Judge Rakoff will render a decision.

In July, Terraform Labs petitioned a magistrate for permission to subpoena data from the bankrupt cryptocurrency exchange FTX, arguing that the information would aid its defense.