Jane Street Accused of Using Secret Terraform Channel to Escape TerraUSD Collapse

Newly unsealed court filings in Manhattan federal court claim that trading giant Jane Street Group used a private Telegram backchannel with Terraform Labs insiders to avoid massive losses during the collapse of TerraUSD (UST) in May 2022. The lawsuit, filed by the administrator overseeing Terraform Labs’ bankruptcy estate, alleges the firm dumped nearly $192 million worth of UST before the stablecoin lost its peg and later profited from short positions tied to the ecosystem’s downfall.

According to the amended complaint, Jane Street allegedly gained access to confidential information through Bryce Pratt, a former Terraform intern who later joined the trading firm. Prosecutors claim Pratt maintained contact with former colleagues at Terraform through a private Telegram group, giving Jane Street advance knowledge about liquidity movements and market instability within the Terra ecosystem.

The filing states that Jane Street exited approximately 193 million UST tokens on May 7, 2022, just before the stablecoin’s dramatic collapse. One of the largest transactions reportedly involved an $85 million UST sale on Curve Finance, executed minutes after Terraform quietly removed $150 million in liquidity from the same pool. Investigators now claim the wallet behind the controversial Curve transaction belonged to Jane Street, challenging earlier theories surrounding the trigger of Terra’s collapse.

Internal communications cited in the lawsuit allegedly show traders discussing their “informational advantage” and later worrying about how blockchain analysts identified their wallets. The complaint also claims the firm earned around $134 million by taking short positions as Terra’s $40 billion ecosystem unraveled.

Jane Street strongly denied the allegations, calling the lawsuit “baseless” and accusing Terraform Labs management of causing investor losses through fraud. The suit additionally names co-founder Robert Granieri and trader Michael Huang, alleging violations of federal securities laws and the Commodity Exchange Act.

The case gains additional weight from a 2023 federal ruling that classified TerraUSD and Luna as securities, potentially strengthening the bankruptcy estate’s claims against the trading firm.