Is Jane Street the Secret Villain Behind Terra's $40 Billion USD Price Collapse?

In a development that could reshape perceptions of one of the most notorious failures in cryptocurrency, a federal lawsuit was filed on February 23, 2026, accusing quantitative trading firm Jane Street of exploiting insider information to accelerate the devaluation of Terra’s stablecoin UST, contributing to a $40 billion market crash. 😳 Timeline of Events, According to the Lawsuit According to the complaint (filed in the Manhattan Federal Court, Case No. 1:26-cv-1504), Jane Street obtained confidential information about Terraform’s emergency measures through internal relationships—including employees such as Bryce Pratt and Michael Huang, along with co-founder Robert Granieri named in the suit.

On May 8, 2022: Terraform quietly withdrew approximately 150 million UST from Curve’s 3pool (the main liquidity pool for UST along with USDC, USDT, DAI). This was not publicly announced—it was an internal safeguard mechanism to support the peg. Minutes later (less than 10 minutes): An account linked to Jane Street is believed to have executed the largest UST sell-off in the group’s history—dumping 85 million UST. The lawsuit alleges that this massive sell-off, carried out with prior knowledge of liquidity withdrawals, was the catalyst that drove UST below $1 and triggered the downward spiral. According to filings, this rapid sell-off marked the breaking point of UST’s peg, causing a “death spiral” that led to a surge in LUNA supply to maintain balance, ultimately rendering both tokens nearly worthless.

Betrayal Allegations and Internal Relationships The lawsuit goes beyond simple trading, alleging a more complex network of interactions. Jane Street executives, including co-founder Robert Granieri and employees like Bryce Pratt and Michael Huang, are accused of engaging in discussions with Terraform leadership, including founder Do Kwon. These negotiations reportedly included expressions of interest in a potential bailout: Jane Street is said to have considered injecting between $200 million and $500 million by purchasing LUNA or Bitcoin reserves at a discount. Group chats and communications cited in the complaint show Jane Street positioning itself as a potential rescuer, gaining access to sensitive information. Instead, the lawsuit claims the firm used this insider information to “front-run” the market—selling off holdings just before the market completely collapsed. Allegations include violations of securities and commodities laws, fraud, and illicit enrichment, with Snyder seeking to recover profits, damages, and a jury trial. Jane Street’s Response: ‘Baseless’ and ‘Desperate’ Jane Street vehemently denies these allegations. In a statement issued immediately after the lawsuit was filed, the company’s spokesperson described the lawsuit as “a desperate attempt by a bankrupt entity to extract money through unfounded claims.” The firm emphasized that their transactions are lawful market activities and that any interactions with Terraform were exploratory and non-binding. This is not the first legal action against trading firms following a exchange collapse; a similar lawsuit targeted Jump Trading in 2025, indicating ongoing efforts to hold parties accountable for Terra’s downfall. Broader Impacts on Cryptocurrency and Traditional Finance Filed amid Terraform’s ongoing bankruptcy proceedings, this lawsuit could result in compensation for creditors if successful. More importantly, it highlights tensions between traditional finance players like Jane Street—an influential quantitative trading powerhouse—and the emerging DeFi space. Experts note that Terra’s failure stemmed from multiple factors: inherent vulnerabilities in its algorithmic design, unsustainable 20% yields on the Anchor Protocol, and broader market volatility. However, if proven, these allegations could lead to stricter regulations on insider trading in the crypto markets, where the line between public and private information remains blurred. As of February 24, 2026, the lawsuit remains in its early stages, with no immediate rulings expected. The case revives debates from the 2022 “crypto winter,” a period marked by a series of failures including Three Arrows Capital and FTX. For investors still holding LUNA Classic (LUNC) or watching the crypto recovery, this could signal unexpected gains—or just another chapter in the long story of accountability. 👀