The bankruptcy administrator for Terraform Labs has filed a lawsuit against quantitative trading firm Jane Street, alleging it used non-public information to profit during the 2022 collapse of the Terra ecosystem, The Wall Street Journal has reported.
According to the report, the lawsuit claims Jane Street had advance knowledge of Terraform's internal liquidity decisions as TerraUSD began losing its dollar peg in May 2022 and structured trades around those moves.
“Jane Street abused market relationships to rig the market in its favor during one of the most consequential events in crypto history,” Todd Snyder, the court-appointed plan administrator for Terraform Labs, told the newspaper.
The action follows a separate lawsuit filed in a US federal court in late December against Jump Trading. In that case, Terraform's estate accused the trading firm of unlawfully profiting from and materially contributing to the collapse of the Terra ecosystem.
Jane Street has denied the allegations.
“This desperate suit is a transparent attempt to extract money when it is well-established that the losses suffered by Terra and Luna holders were the result of a multi-billion dollar fraud perpetrated by the management of Terraform Labs,” Jane Street told Decrypt. “We will defend ourselves vigorously against these baseless, opportunistic claims.”
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Legal experts say the case could have broader implications for how insider trading principles are applied in crypto markets.
“This lawsuit seems to argue that the most important moves do happen in private chats before hitting the blockchain,” Andrew Rossow, public affairs attorney and CEO of AR Media Consulting, told Decrypt.
He added that the case “matters significantly, because the court isn't just judging a trade anymore; it's setting a precedent that ‘privileged access' in DeFi is a legal liability, and not just a competitive advantage.”
If proven, the allegations could push courts toward applying a stricter misappropriation theory in crypto markets. Under such an approach, liability would not require a traditional corporate insider relationship. Instead, a market maker could face legal exposure if it obtained confidential information from a protocol team and used it to trade against the broader market, Rossow explained.
The theory could also widen the definition of an insider in decentralised finance cases. Informal back channels or private chat groups could be treated as the equivalent of a corporate boardroom, extending insider status to anyone with direct access to crisis-related communications.
“It suggests that in crypto, an ‘insider' isn't just an executive; it's anyone with a private line to the ‘war room' of a protocol during a crisis,” Rossow said.
Terraform's collapse in May 2022 was one of the most significant events in crypto history. Its algorithmic stablecoin TerraUSD lost its dollar peg, triggering a near-total wipeout of its sister token Luna within days. The roughly $40 billion implosion erased billions in investor wealth and intensified stress across the broader crypto market.
The fallout contributed to a wider industry downturn, culminating in several high-profile failures, including the collapse of FTX later that year.
Terraform Labs filed for bankruptcy in January 2024. A wind-down trust was subsequently set up to pursue recoveries for creditors. Founder Do Kwon has since pleaded guilty to criminal charges and is serving a 15-year prison sentence.
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