From Terra's bankruptcy to ZachXBT's exposé, the insider trading scandal in the crypto industry reignites

Time cannot erase the pain caused by the Terra collapse in May 2022, and new legal lawsuits reveal possible “black box operations” behind the crash that year. On February 24, a bankruptcy trustee appointed by Terraform Labs filed a lawsuit in the U.S. Federal Court in New York, targeting top global market maker Jane Street.

The details in the complaint are shocking: on May 7, 2022, less than 10 minutes after Terraform Labs withdrew up to 150 million UST from the Curve liquidity pool, a wallet address associated with Jane Street also withdrew 85 million UST from the same pool. This highly precise “front-running” behavior is accused of using non-public insider information, not only helping the institution profit illegally but also “adding fuel to the fire” by accelerating UST de-pegging and the collapse of the entire Terra empire.

This lawsuit is not an isolated old story; it once again strikes a nerve regarding “information asymmetry” in the market. In the crypto world, the actions of whales can already stir up storms, and if such actions are based on inside information, it is undoubtedly a blow to ordinary investors. As of press time, on the Gate trading platform, the latest price of Terra-related token Luna Classic (LUNC) is $0.00012873, and the market is still digesting the long-term impact of this historical issue.

New Wounds: ZachXBT Announces Major Investigation, Directing the Spotlight at “Most Profitable Business”

If Terra’s lawsuit is a liquidation of the past, then on-chain detective ZachXBT’s latest teaser is a declaration of war on the present. On February 23, ZachXBT announced that on February 26, he would release a major investigation into “one of the most profitable businesses” in the crypto industry.

This news quickly sparked a “hunt for the culprit” frenzy in overseas communities. ZachXBT emphasized that the investigation involves “multiple employees abusing internal data for insider trading over a long period,” constituting systemic violations. Although specific targets have not been disclosed, market speculation is focused on Polymarket, WLFI (World Liberty Financial), and some Solana ecosystem projects.

• Polymarket’s Dilemma: As a prediction market platform, its employees theoretically have access to order flow, outcome determination, and other sensitive information. Previously, the platform has made several “super-accurate” predictions on geopolitical events, sparking insider trading discussions. Ironically, Polymarket even created a prediction market on “Who is ZachXBT investigating?” but excluded itself from the options, drawing widespread mockery.
• WLFI’s Public Relations Crisis: The crypto project WLFI, associated with the Trump family, has also been in turmoil. Its co-founder’s account was hacked, and Eric Trump deleted numerous related tweets. During ZachXBT’s teaser period, these actions were widely seen by the community as signs of guilt.

Regardless of who the investigation ultimately points to, this teaser has already dragged the “insider trading” taboo out of the shadows and into the sunlight.

Regulatory Sword Hoisted: From “Warning” to “Judgment” in Global Regulations

A series of incidents leaves no reason for global regulators to remain on the sidelines. By 2026, crypto regulation is shifting from risk warnings to substantive legal judgments and institutional frameworks.

In China, the regulatory stance remains clear and strict. The People’s Bank of China and eight other departments issued a new notice in February reaffirming that virtual currency-related activities are illegal financial activities, and cracking down on insider trading, fraud, and other illegal crimes.

In the West, legislative progress is accelerating significantly. Japan’s Financial Services Agency plans to complete legislation this year, officially incorporating insider trading bans into the Financial Instruments and Exchange Act, granting market regulators investigative and criminal prosecutorial powers. The UK’s Financial Conduct Authority is also actively advancing new regulations, aiming to finalize a comprehensive crypto regulatory framework including insider trading prevention by the end of 2026.

These developments indicate that the crypto world is no longer a “wild frontier.” As traditional financial regulators begin patrolling here, the space for profiting from information asymmetry will be greatly squeezed.

Conclusion

From the lawsuits excavated from Terra’s ruins to ZachXBT’s upcoming “data nuclear bomb,” 2026’s crypto market is undergoing a painful but necessary detox. Insider trading, a tumor eroding market confidence, faces a dual assault from global regulation and community self-regulation.

For investors, this is not a bad thing. A more transparent and fair market environment is the foundation for healthy industry development. In this context, choosing a compliant, secure, and transparent trading platform is especially important. As your trusted crypto asset platform, Gate will continue to monitor developments, promptly update authoritative market news, and provide real-time token price data. Remember, in the crypto world, the best way to protect yourself is to stay informed and approach every trade with respect.