Terra lawsuit frames collapse as a targeted currency attack by Jane Street
The legal complaint against Jane Street offers a provocative new interpretation of the Terra Luna collapse, suggesting insider insight — not just structural flaws — may have driven the depeg.
When Terra Luna collapsed in May 2022, most of high finance barely knew it existed — myself included.
Yes, I was aware something called Terra was doing the rounds, but I had no real understanding of its inner workings. The same was true of many other monetary experts who have since become expert authorities on stablecoin mechanics and regulation. The collapse and its implications caught most of us off guard.
To drive that point home, the week of the great unravelling — which began in earnest on Monday, May 9 — I happened to be moderating a workshop with some of the best-known academics studying stablecoins. All were fascinated by the developments, but most, like me, had been unfamiliar with TerraLuna until that week. At that time, academic understanding of stablecoin operations was largely limited to this list of inquiries and academic works.
The incident has since become a go-to academic reference for proving the intrinsic instability of stablecoins. Scores of high-level academic works, among them by Igor Makarov of the LSE, Antoinette Schoar of MIT, Darrell Duffie of Stanford, and Raphael Auer, have scrutinized the finer details of the destabilization, mostly concluding that the incident demonstrates why stablecoin regulation and backing requirements are necessary.
But now, a new legal complaint filed by Terraform Labs against Jane Street on February 23 threatens, if proven in court, to expose much of that analysis as strikingly incomplete.
The complaint alleges that Terra’s depeg may, in fact, have been caused by materially informed and strategically timed transactions by Jane Street during the critical de-pegging window. If substantiated, it would imply that asymmetric information and insider positioning played a much bigger role in the “spontaneous” bank-run dynamic that brought down TerraLuna.
Whether those allegations ultimately withstand judicial scrutiny remains to be seen, but their emergence significantly complicates the prevailing narrative that the collapse can be explained by structural design flaws alone.
But the disclosure contains far more than a legal defence — it reads at times like an inadvertent whistleblowing document, offering rare insight into how the sector actually operates behind the scenes.
Below is an outline — based on what can be gleaned from the filing — of the key revelations that merit closer scrutiny into how the crypto and traditional finance ecosystems interoperate, including the role that insiders and dominant market makers such as Jane Street, a former training ground for Sam Bankman-Fried, and Jump Trading played in both supporting and destabilising the TerraLuna system for profit.
In a nutshell, the complaint suggests that many of the structural suspicions about how crypto markets operate — and how they interact with insiders at the expense of retail investors — were not entirely misplaced.
