The implosion of the stablecoin Terra one year ago was the first in a series of dominoes that wiped out over $2 trillion in market cap and much of the crypto industry’s reputation. It is painfully obvious, in hindsight, that Terra—whose tokens sought to maintain a $1 peg through financial alchemy—was a Ponzi scheme doomed to fail. The question is why it didn’t fail sooner.
It turns out Terra likely would have failed much sooner but for a helping hand from Jump, the Chicago-based trading and market-making firm. A year before its final collapse last May, Terra was circling the drain as the market value of its “$1” stablecoin languished around 20 cents until Jump swooped with a secret deal to prop it up.
Reports of Jump’s ties to Terra began trickling out in February, but the Securities and Exchange Commission made it official on Friday when it confirmed Jump was the unnamed firm cited in an earlier phase of the agency’s investigation. In exchange for rescue funding, Terra’s disgraced founder, Do Kwon, agreed to let Jump buy options in the tokens for 30, 40, and 50 cents—letting the firm cash in handsomely when Terra’s price climbed following Jump’s clandestine cash infusion.
The SEC has not accused Jump of any wrongdoing, and it’s not clear if the firm broke any laws. But it’s notable that, according to new details that emerged on Monday, Jump asked Terra to keep its involvement in propping up the coin a secret. Meanwhile, Kwon was recently arrested in Montenegro with three passports.
Sketchy backroom deals are, of course, all too common in crypto but Jump’s antics stand out in part because of how much money it made from the Terra arrangement—well over $1 billion—and because Jump bills itself as one of the country’s top trading firms. The firm hires plenty of people with Ph.D.s in fields like math and physics to carry out research and develop algorithmic trading strategies.
It would be surprising if no one at Jump saw Terra for what it was. A more likely explanation is they did but decided to get rich rather than sounding the alarm. If that’s the case, chalk up this episode as yet another black eye for the crypto industry at a time when it is desperately looking for good actors to rebuild its reputation.
Jeff John Roberts
[email protected]
@jeffjohnroberts
DECENTRALIZED NEWS
The head of President Joe Biden's new unit focused on the criminal misuse of digital assets said crypto exchanges, mixers, and tumblers are a top priority. (FT)
Bankrupt BlockFi says it will liquidate all its assets in a bid to repay creditors after concluding it would not find a viable buyer. (WSJ)
Binance's founder, who contributed $500 million to Elon Musk's purchase of Twitter, just unfollowed him. (The Block)
A survey of 60 leading crypto companies revealed that only around half used a professional auditor while slightly more had independent boards. (Bloomberg)
NewLimit, the non-crypto startup founded by Coinbase's Brian Armstrong, raised $40 million in a Series A for its mission to "cure aging." (Fortune)
MEME O’ THE MOMENT
A crypto OG on the long wait to implement a Bitcoin update:
This is the web version of Fortune Crypto, a daily newsletter. to get it delivered free to your inbox.
