Terraform Labs has accused Citadel Securities LLC, the market-making firm based in the US, of destabilizing its TerraUSD (UST) stablecoin intentionally in May last year.
It alleged that instead of an algorithmic failure, the incident was actually due to an ‘intentional concentrated effort’.
The stablecoin
The UST stablecoin had been designed to maintain its peg to the US dollar 1:1 by using an arbitrage strategy to ensure that the demand and supply of the stablecoin remain balanced.
When the value of the stablecoin rose above the $1 mark, the protocol gave incentive to the users for minting the UST token and burning LUNA, its sister token, which was also the governance and staking asset of the network.
The goal was to reduce the price of the Terra UST by boosting the supply and reducing the supply of the LUNA token to increase its price.
Earlier this week, Terraform filed a motion with the US District Court for the Southern District of Florida in which it asked Citadel Securities to produce some documents.
The documents were related to the trading activities of the company between March 1st and May 31st last year.
The motion
Terraform asserted that it is ‘vital’ to obtain this information because it intends to use it for its defense in the lawsuit filed against the company by the US Securities and Exchange Commission (SEC).
The regulatory agency took legal action against Terraform Labs this year in February in which the firm and Do Kwon, its co-founder, were accused of misleading investors regarding the stability of its stablecoin.
At one point, the TerraUSD token had fallen as low as $1 to $0.02. The filing said that they were disputing the SEC’s allegations strongly.
It also said that the market destabilization had not occurred because of the instability of the algorithm on which the UST stablecoin was based.
Instead, it asserted that the destabilization happened due to the intentional and concerted efforts of some third-party market participants who had shorted the stablecoin to depeg it from its price.
The response
A spokesperson for Citadel Securities said that the motion was frivolous was based on fraudulent social media posts and did not consider information, which showed their lack of involvement.
When the Terra ecosystem collapsed last year, it had wiped out more than $80 billion in value from the crypto market and had sent shockwaves throughout the space.
As a matter of fact, it eventually resulted in the bankruptcy of a number of companies in the crypto space, which include Celsius Network and Three Arrows Capital.
Since then, the market has been struggling and has seen a number of other bankruptcies, including the collapse of the FTX crypto exchange.