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>>Terraform Labs sues, sparking a fierce legal showdown with Jane Street over the TerraUSD disaster

Terraform Labs sues, sparking a fierce legal showdown with Jane Street over the TerraUSD disaster

crypthub

about 4 hours ago

Lawsuit Overview

Terraform Labs, now in Chapter 11 bankruptcy, sued Jane Street in Delaware court on April 15 2025. The complaint alleges the market maker’s trading strategies amplified the destabilisation of TerraUSD (UST) and Luna. Specific claims include coordinated selling pressure, exploitation of Terra’s mint‑and‑burn mechanism, and breach of market‑integrity duties.

Terra Collapse Context

In May 2022 UST lost its $1 peg, triggering a death‑spiral that drove Luna from over $80 to fractions of a cent. The algorithmic stablecoin relied on mint‑and‑burn with Luna, creating hyper‑inflation when the peg broke. The event erased roughly $40 billion in market value.

Regulatory and Legal Significance

This lawsuit is the first direct action against a crypto market maker for a stablecoin failure. Experts note market makers must balance profit motives with stability obligations under existing regulations. The case could set precedent for liability in decentralized finance and attract further SEC scrutiny.

Potential Market Impact

A successful verdict may increase creditor recoveries from Terraform’s bankruptcy estate. It could compel firms like Jane Street to tighten compliance, raise trading costs, or reduce crypto liquidity provision. While investors may obtain partial restitution, full recovery remains unlikely.