New evidence pertaining to the involvement of Jump Trading in the collapse of the TerraUSD (UST) stablecoin has been provided by the defence representing Terraform Labs and Do Kwon. The correspondence, formally presented to the Supreme Court of Singapore, provides valuable perspectives on the trading of UST on the KuCoin platform throughout its depegging periods in May 2021 and May 2022.
The Singapore Supreme Court made a formal request for evidence subsequent to allegations made by the US Securities and Exchange Commission (SEC) against Terraform Labs. The SEC claimed that Terraform Labs had provided misleading information on the capability of their algorithm to restore the peg of UST in 2021. The Securities and Exchange Commission (SEC) asserts that the decoupling of the currency in 2021 was orchestrated by Jump Trading, a market maker based in the United States. Notably, Jump Trading was not involved during the coin's subsequent fall in 2022.
Exchange Data Reveals Role of Jump Trading
According to the defence counsel, the depegging event that occurred in May 2021 may be attributed to the withdrawal of USDT by traders from KuCoin, which was thereafter transferred to both decentralised exchanges (DEX) and centralised exchanges (CEX). The data obtained from KuCoin, the initial exchange to include UST in its offerings, indicates a notable surge in selling activity coinciding with the depegging event.
Based on the analysis of Dr. Bruce Mizrach, an expert in the field of Securities and Exchange Commission (SEC), it is said that Jump, a financial firm, was responsible for a majority of the acquisitions that contributed to the subsequent increase in UST's price, bringing it back up to $1. The legal representatives have verified that Jump Crypto engaged in trading activities on the specified day and furnished wallet addresses to facilitate comprehension of the trading approach employed by Jump and its associated entities.
The withdrawal activity of #UST on the KuCoin platform had a notable increase in proximity to the depeg event of 2021. This surge in withdrawals coincided with the subsequent decline of UST's value below the $1 mark in May 2022. The traders withdrew U.S. Treasury (UST) funds from the KuCoin platform and subsequently transferred them to other centralised exchanges and decentralised exchanges (DEXes).
Similar to the year 2021, the data from KuCoin once again indicates that Jump engaged in trading activities on the specified day. However, the precise magnitude of their trading remains uncertain. The examination of addresses associated with Jump will provide further insight into the potential influence of its trading activities on the re-pegging of UST in 2021.
If Jump's involvement in the acquisition of UST in 2022 was significantly reduced, it would provide an opportunity for the Securities and Exchange Commission (SEC) to potentially demonstrate the inadequacy of Terraform's algorithm in maintaining the stability of UST at $1.
Regulatory Authorities Intensify Scrutiny of Cryptocurrency Business Models
The involvement of Jump Crypto in the well-being of Do Kwon's Terra ecosystem has brought to light the extent to which crypto enterprises have pushed the limits of prevailing legislation in order to enhance their operations during the peak of the bullish market. In the year 2021, there was a notable trend towards adopting a hybrid business model that encompassed brokerage, market-making, and settlement activities, coinciding with the surge in Bitcoin's value to $66,000.
However, the convergence of these disparate corporate entities under a solitary retail platform raised apprehensions among regulatory authorities. A cryptocurrency exchange has the potential to exploit its many functions in order to enhance its own financial gains while detrimentally impacting investors.
The failure of the #crypto exchange group FTX Trading in the previous year can be attributed to the extensive interconnection between the FTX exchange and its affiliated market-maker, Alameda Research. The financial sheet of Alameda consisted of FTX's FTT tokens, which were utilised by Alameda as collateral for borrowing funds.
The repercussions of the firms' downfall reverberated across the entirety of the #cryptocurrency sector, resulting in a significant depletion of essential liquidity from global crypto marketplaces.
The adverse impact of these shocks on investors has led to an escalation in regulatory actions by the US Securities and Exchange Commission. Coinbase, the preeminent cryptocurrency exchange in the United States, has faced allegations of functioning as an unregistered broker-dealer, so contravening established securities regulations that have been in place for several decades.
The use of two-tier exchanges, which involve a distinct exchange and settlement mechanism, has gained popularity due to their ability to adhere to established exchange regulations. However, the Securities and Exchange Commission (SEC) has issued a warning stating that companies who fail to comply with regulations would be subject to penalties, pending a review of its exchange definitions.
