Terraform Labs blames Citadel Securities for its stablecoin crash

By: Dickson Arinze

October 13, 2023 7:18 AM

Terraform Labs has asked the judge to allow its move to compel trading data from Citadel Securities, which it claims was involved in the May 2022 collapse of USTC.

Markets maker Citadel Securities has been accused by Terraform Labs, established by Do Kwon, of engaging in a "concerted, intentional effort" to bring about the depeg of Terraform Lab's stablecoin USTC in 2022.

Terraform Labs filed a motion in the United States District Court for the Southern District of Florida on October 10 to force Citadel Securities LLC to submit documents relating to its trading conduct in May 2022, around the time its stablecoin, TerraUSD Classic (USTC), depegged.

Screenshot from Terraform filing compelling Citadel to give 
additional documents. source: courtlistener

It claims that the asset's depreciation from $1 to $0.02 in May 2022 was caused by "certain third-party market participants" purposely shorting the stablecoin, rather than instability in its algorithm.

"Movant [Terraform] contends that the market destabilization that occurred did not result from instability in the algorithm underlying the UST stablecoin," according to the motion filed by the company.

"Instead, Movant claims that the market instability resulted from a deliberate and coordinated effort by some unnamed third-party market participants to "short" and force UST to depeg from its one-dollar pricing."

The motion also alleges "publicly available evidence" that Citadel CEO Ken Griffin planned to short the stablecoin at the time of the depeg.

"Public records show that Citadel Entities head Ken Griffin intended to short UST at or around the time of the May 2022 depeg,"

The complaint included a screenshot from a Discord channel discussion in which a pseudonymous trader had lunch with Griffin, who allegedly claimed, "They were going to Soros the f*** out of Luna UST," most likely in reference to George Soros' trading techniques, which revolved around heavily leveraged one-way stakes.

Forbes reports that in May of 2022, Citadel Securities would stop denying requests to trade the TerraUSD stablecoin.

According to Terraform's request, these records are essential to the company's defense against the SEC case brought against Terraform Labs and its founder Do Kwon in February, which alleges the defendants participated in "orchestrating a multi-billion dollar crypto asset securities fraud."

"This defense will be significantly undermined if Citadel Securities, Inc. succeeds in concealing this limited information," the statement said.

If the court declines to compel Citadel to reveal the trading documents, Terraform has asked that the case be transferred to Judge Rakoff of the United States District Court for the Southern District of New York.

Terraform Labs asked a judge in July for permission to subpoena data from the bankrupt cryptocurrency exchange FTX, arguing the material would aid its defense.