Did Sam Bankman-Fried, the founder of FTX, play a role in the collapse of the Terra ecosystem and its Luna stablecoin?
On Wednesday, a report disclosed that prosecutors in Manhattan were looking into the possibility that SBF may have had a hand in it.
The report dictated that federal prosecutors are looking into the possibility that the market price of the two interlinked and doomed currencies may have been manipulated by the former FTX boss earlier this year.
It essentially confirms the analysis of most blockchain experts that it was the collapse of the Luna and Terra tokens that contributed to the downfall of FTX as well.
US prosecutors are investigating the possibility that Bankman-Fried may have tried to manipulate the prices of Luna and TerraUSD, which were interlinked.
The Manhattan prosecutors suspect that he had steered the prices to benefit his own entities, including Alameda Research and FTX.
TerraUSD (UST) was an algorithmic stablecoin that was produced by Terraform Labs. It had an arbitrage network that was designed to ensure that it remain pegged to the US dollar.
The network sold and bought the cryptocurrency of the Terra network, which was named LUNA.
Back in May, TerraUSD was unable to maintain its peg to the dollar. The market was flooded with Luna tokens by Terraform Labs in order to help the UST stablecoin in maintaining its 1:1 peg.
The once mighty stablecoin fell even further from its peg in the next week and this saw the Luna token’s price reduce drastically.
This drastic action had occurred because of a number of sell orders for the UST stablecoin and an unnamed source stated that these orders had come from FTX.
Simultaneously, FTX wanted to make a profit, so they decided to short the price of the Luna token. Instead, the entire TerraUSD-Luna ecosystem came crashing down.
Since the implosion of the FTX crypto exchange and other subsidiaries in November, the company and its boss have come under a great deal of scrutiny from officials and regulators all over the world.
It has also brought about a crypto contagion that is pulling down other businesses in the crypto industry. There is currently a legal battle ongoing between the Bahamian government and the United States.
Since FTX had its headquarters in the Bahamas, the two are trying to ascertain which country will maintain jurisdiction over the case.
The report said that the investigation into the involvement of Sam Bankman-Fried in the Terra and Luna collapse is just in its beginning stages.
There is a House Financial Services Committee hearing scheduled to take place on December 13th and an invitation was issued to Bankman-fried by Rep Maxine Waters to attend.
He has also been asked to attend a hearing the next day of the Senate Banking Committee. However, his response makes it unclear if he will do so or not.
SBF has not given a clear answer and Rep Maxine Waters has responded that they do have the option of subpoenaing him, in which case he would have to make an appearance.
So far, he has denied that he conducted any fraud and has asserted that he has no criminal liability because the FTX collapse was just due to poor management.