In-depth investigation of the "culprit of the crash" Jump: Intern promoted to president in 4 months

Source: Fortune

Translation by: Azuma, Odaily Planet Daily

Editor’s Note: This article is a deep piece published by Fortune on July 11. Before its release, the U.S. Commodity Futures Trading Commission (CFTC) had begun investigating Jump, and signs of significant changes in Jump's business situation were already apparent, with its prominent figure Kanav Kariya choosing to resign shortly thereafter.

A month later, rumors about Jump potentially "collapsing" intensified, and its sell-off actions accelerated the market's plunge. In this article, we may find some clues about its true status through the development history of Jump's business in the cryptocurrency field.

The Intern of the CEO

Jump Crypto always conducts business communications through Zoom meetings. In May 2021, a group of employees gathered in a Zoom meeting to discuss an escalating crisis.

Chicago-based financial firm Jump Trading earned a considerable reputation in the early 2000s during the Flash Boys era through high-frequency trading, but the company's business gradually began to delve into the highly volatile cryptocurrency sector.

The algorithmic stablecoin Terra (UST) was once one of the most glamorous projects in the cryptocurrency space, and Jump could be considered its invisible partner. Terra aimed to maintain a $1 peg through a complex algorithmic mechanism related to its native cryptocurrency LUNA, while Jump would coordinate this algorithm on the backend, supporting UST through trading—however, despite the confidence of Terra's founder Do Kwon, UST experienced a de-pegging incident in May of that year.

At that time, Jump had the opportunity to safely earn millions of dollars through a partnership agreement with Terraform Labs (the developer of Terra), but if things continued as they were, Terra was likely to collapse rapidly. Jump's co-founder Bill DiSomma did not want to give up on this "darling project," so he joined the Zoom meeting, trying to find a better solution.

Minutes later, a solution emerged. According to testimony later provided by Jump in court, a 25-year-old intern named Kanav Kariya joined the meeting and presented his proposal.

Kariya said in the meeting, "I talked to Do Kwon, and they agreed to give us options."

What happened next may have truly changed the course of the cryptocurrency industry. According to court documents, in the following week, Jump secretly purchased a large amount of UST to create the illusion of demand, pulling the token's value back to $1. Meanwhile, Kwon agreed to deliver up to 65 million LUNA (options) to Jump at a price of $0.4, even though LUNA had peaked at over $90 in the secondary market.

According to a later announcement from the U.S. Securities and Exchange Commission (SEC), Jump made a staggering $1 billion from this agreement alone, and a few months later (in September 2021), Kariya was rapidly promoted to president of Jump Crypto.

On the other hand, this operation superficially restored UST's peg, and Kwon began to boast on X (then still Twitter) that UST had achieved "natural recovery." According to court records, a Terra employee privately admitted in a text message: "Without Jump's intervention, we really might have been doomed. Haha."

However, this controversial "savior act" could only delay but not change Terra's fate. A year later, when UST de-pegged again, Jump was already powerless.

In May 2022, UST faced a death spiral, with $40 billion evaporating in just a few days, and countless investors lost their life savings in the incident. The cryptocurrency communities on Twitter and Discord were filled with cries for compensation, and some threatened to commit suicide. This collapse subsequently triggered a chain reaction throughout the cryptocurrency market, indirectly leading to the FTX crash in November 2022, and ultimately heightened regulatory scrutiny of the industry's risks.

However, until 2023, no one knew that Jump had been secretly supporting UST until the SEC filed a major fraud lawsuit against Terraform Labs and Kwon, partly based on the testimony of a whistleblower from Kariya's team, James Hunsaker. Terraform Labs and Kwon reached a $4.5 billion settlement with the SEC in June, but since Terraform had filed for bankruptcy earlier this year, most of the funds may not be paid. Currently, Kwon still faces criminal charges from the U.S. Department of Justice (DOJ) and is awaiting extradition from Montenegro, with Kwon's side consistently denying any wrongdoing, and Terraform has not responded to our request for comment.

Although Jump has not been charged with any crimes, their dealings with Kwon will clearly affect their reputation—business secrets have been exposed in the most disreputable cases. In March 2024, the whistleblower testimony released by the New York federal court could be seen as a significant marker of Jump's setbacks since entering the cryptocurrency industry.

Kariya declined to comment on the matter, and Jump's spokesperson also refused to allow any senior executives to be interviewed or comment on the issue. We interviewed more than twenty former Jump employees, competitors, and industry traders, many of whom only spoke on the condition of anonymity for fear of retaliation. However, even though Jump's activities in the cryptocurrency field have diminished, it remains one of the most influential players in the industry, controlling hundreds of millions of dollars in capital.

On the surface, Jump's "legendary" story fits well with the narrative style in the blockchain industry, but what makes Jump unique is that it was already a well-known "giant" in traditional finance. It believed it could dominate this emerging market, like an adult entering a child's game, and then walk away with billions of dollars, but in the end, it learned the same painful lesson as many other self-important individuals.

A former Jump employee told us: "The history of finance needs to be written with the blood of investors."

The Prodigy from Mumbai and the Windy City Giant

Since its establishment in 2001, Jump Trading has become an important part of Chicago's long-standing financial circle. However, when 18-year-old Kariya enrolled at the University of Illinois in 2014, he had never heard of the company. Kariya grew up in a middle-class family in Mumbai, India, and learned about the list of top undergraduate engineering schools in the U.S. from the news, from which he chose the University of Illinois.

The cold winter in Champaign did not deter Kariya. As a child who enjoyed playing video games and watching war movies, he chose to major in computer science in college—this was different from many of his future colleagues, who often started learning programming in childhood. Kariya later explained in a podcast that after visiting Disneyland and several universities at the age of 13, he knew he wanted to come to the U.S.—"The infrastructure and education quality looked very appealing… all the university campuses were equipped with computers."

Just a few years later, Kariya secured an internship at Jump Trading and quickly rose through the ranks during the golden age of cryptocurrency. Today, Kariya's name is almost as well-known in the cryptocurrency industry as Jump itself, partly because other executives at Jump have consistently avoided the spotlight, instead pushing Kariya to the forefront.

By 2021, at just 25 years old, Kariya had become the president of the newly established Jump Crypto division. His typical appearance, with black hair and a hint of a goatee, often graced various tech star lists and cryptocurrency conferences, making him look like a cowboy.

At the University of Illinois, Jump's name did not appear on the campus recruitment list, nor did they post job openings on bulletin boards. Jump preferred to recruit graduates and students like Kariya through private referrals. Both of Jump's founders, Bill DiSomma and Paul Gurinas, began their careers at the Chicago Mercantile Exchange (CME) and had previously attended the University of Illinois.

At CME, traders would bid by jumping and shouting (which is also the inspiration for Jump's name). DiSomma and Gurinas witnessed the online trading revolution engulfing the world they were familiar with, and they were determined to get a piece of the pie— in 1999, the two co-founded their own company, Akamai, and renamed it Jump in 2001.

As Michael Lewis describes in his book "Flash Boys" about the rise of high-frequency trading, companies like Jump (and its competitors, such as Jane Street and Citadel Securities) place a high value on the confidentiality of their strategies—they gain an edge through technology, being faster in execution speed or market efficiency, and they protect these strategies with near-religious fervor.

Veteran in the Chicago financial scene, John Lothian, recalled that he had to sign a non-disclosure agreement just to step into the front door of Jump's headquarters in the Montgomery Ward building along the Chicago River, even though he was only there to request Jump sponsor a community event, which Jump politely declined.

Lothian told us, "They just won't let people into the office because it doesn't align with their confidentiality principles."

The "Toy" Market

Jump's entry into the cryptocurrency industry also reflected the company's culture of secrecy. Some former employees and individuals familiar with the company's operations revealed that Jump initially only made tentative investments in the field, treating cryptocurrency business as a "testing ground" for interns to experiment, while isolating this part of the business from its main operations.

By the end of 2015, Jump established a research and development office at its founders' alma mater, which would fund some research projects and collaborate with professors on cutting-edge technology explorations, such as using VR headsets to simulate trading environments. They also hired college students as interns, discovering potential talent through word of mouth, and Kariya joined through a friend's recommendation.

Jump always faced a dilemma in training newcomers: the company needed to test the true abilities of potential employees, specifically whether they could identify subtle opportunities in financial markets and translate them into algorithmic trading models, while at the same time, Jump could not entrust its most critical strategies and billions of dollars in capital to temporary employees.

Cryptocurrency provided a perfect solution, as this market had its own tradable assets, exchanges, and characteristics, while being sufficiently isolated from Jump's stock and bond markets, preventing any mutual threats.

An anonymous former employee of Jump told us: "It's kind of like a 'toy' market."

For the young people working on cryptocurrency business at Jump, they were not entirely neglected. In fact, DiSomma himself was very interested in the vision of cryptocurrency creating decentralized markets. Supporters of cryptocurrency believe that blockchain technology can completely eliminate intermediaries, such as brokers and clearinghouses. As a pioneer of the online trading revolution, DiSomma had witnessed the trading market evolve from the crowded halls of CME to an internet model, and he was eager for the next paradigm shift.

So when Kariya joined Jump as an intern in January 2017, he was assigned to build the early cryptocurrency trading infrastructure, with almost no management restrictions. Kariya mentioned in a podcast in January 2023, "We could freely do our own thing… it was like working in a completely enclosed bubble."

The subsequent story is that bubble kept growing. In the year Kariya interned, Bitcoin experienced its first major surge, rising from less than $1,000 at the beginning of 2017 to nearly $20,000 in December. According to a former employee, Jump's cryptocurrency team gradually rose in importance within the company, becoming one of the best-performing teams.

A significant change was that cryptocurrency gradually ceased to be just a toy for interns. Soon, after the Bitcoin bubble finally burst in 2018, Kariya graduated and joined the Jump team full-time, and his rise had begun.

The Market-Making Giant

High-frequency trading firms like Jump are always shrouded in a layer of mystery, and their primary trading form is known as "market-making."

When people go to exchanges, they need a counterparty whether buying or selling. Market makers act as intermediaries in this process, competing to provide the best quotes. For market makers, the spread on each trade may be small—just a few cents per share—but in an algorithm-driven systematic operation model, this is a very profitable business.

In traditional finance, market-making is a strictly regulated business, with regulators ensuring there are no conflicts of interest. Market makers do not work directly with the companies issuing stocks but collaborate with exchanges under regulatory oversight, and different businesses like market-making and venture capital are usually physically separated to avoid any potential insider trading or market manipulation.

The cryptocurrency industry is entirely different. As an emerging "wild industry," it is not constrained by the cumbersome rules established over decades. Michael Selig, a lawyer at the law firm Willkie Farr & Gallagher, which focuses on digital asset services, stated, "In the cryptocurrency space, you don't face that kind of direct regulation."

Market makers in the cryptocurrency industry not only collaborate with exchanges but also often enter into agreements directly with project teams, frequently helping them list on exchanges and driving buy and sell activity by creating liquidity to attract traders and funds looking for the next hot token.

To this end, project teams lend market makers large amounts of tokens to initiate trading. Some market makers also negotiate with project teams to request options, allowing them to purchase a large amount of tokens at a significant discount if the project progresses well. Selig noted that this reverse structure in the cryptocurrency industry (where market makers collaborate with project teams rather than exchanges) makes sense to some extent, as project teams need to achieve higher trading activity for their tokens.

This unique model allows a situation to occur that would never be permitted in traditional finance—while market makers can still profit from trading spreads, substantial income often comes from those lucrative options.

For companies like Jump, becoming a market maker for a project means they can have nearly unlimited profit potential without taking on real wealth risks. An anonymous founder of a cryptocurrency exchange told us, "If you work at Jump, you can decide which token will succeed."

While other companies from traditional finance have also begun to venture into the cryptocurrency space, such as Jump's old rival DRW establishing a blockchain division called Cumberland in 2014, Jump quickly established its leading position through market-making and over-the-counter trading.

As Jump expanded its business in the cryptocurrency field, its thirst for profits also grew. Jump has its own venture capital division, Jump Capital, which means the company can invest in a project while also market-making for a token. Although these divisions are ostensibly independent, after the venture capital team was integrated into Jump Crypto in 2021, related business discussions often connect to the same business team. The aforementioned anonymous founder of the exchange stated that he had interacted with Jump's business staff when discussing potential deals, but from an outsider's perspective, it was impossible to distinguish between Jump's venture capital business and trading business. In traditional finance, this is completely unacceptable.

Jump is not the only market maker that demands options, but other market makers might only request one to two percent of the total token supply, while Jump often demands five percent or more. An anonymous founder who attempted to negotiate market-making with Jump in 2021 stated, "This gives them a lot of ammunition to disrupt."

Despite this, Jump still wields considerable influence. Before BlackRock applied for a Bitcoin spot ETF, Jump was seen as a symbol of traditional finance entering the cryptocurrency space, and Jump itself had enough strength to support its business operations. Even though Jump's demand for options from project teams might seem somewhat "shameless," many project teams are still willing to pay that price, as one trader noted.

A project founder told us, "If you don't want to accept Jump's trading, you might even feel foolish. They are Jump, and their attitude is that you have to listen to them, or else get lost."

The One Pushed to the Forefront

Although Jump often displays a strong style in trading, Kanav Kariya presents a more approachable image for the company, and the genius aura he exudes is extremely important in the cryptocurrency field, which is hard to find in traditional finance. Cryptocurrency is a highly socialized industry, whether in the heated discussions on Twitter or behind the scenes in conference rooms, Jump needs a suitable face to assist in negotiations and transactions, and Kariya is that choice.

An anonymous trader from a competitor of Jump stated, "They try to connect with young people; they are not stupid."

In the quirky and combative cryptocurrency industry, Kariya appears calm and authoritative. In several YouTube interviews, Kariya, although often looking tired, still shows his engagement, speaking with a slight Mumbai accent and a thoughtful smile. He has humbly stated that since all of Jump's trades are executed by algorithms, he has no predictions about the market's future direction—"Don't ask me what the price will be in the next 10 seconds."

It is not surprising that Kariya looks tired; during his years at Jump, he has been busy building trading systems while expanding the Jump Crypto team to over 150 people. Meanwhile, Jump Capital has also invested significant resources into cryptocurrency, supporting star projects like Solana.

In September 2021, just two months before Bitcoin reached its peak of $69,000, Jump Crypto was officially established as an independent cryptocurrency division, with Kariya serving as its president. Bill DiSomma and Paul Gurinas are well-known figures in the Chicago financial industry, while Kariya is gradually becoming a rising star in the cryptocurrency field, attracting media attention from all sides. In an interview with Bloomberg, Kariya spoke about an internal project of the company: "I don't think you can imagine how big it will be…"

Another notable event reflecting Jump's emphasis on public image was the hiring of Nathan Roth as Chief Marketing Officer for Jump Crypto, who previously held the same position at Hinge and propelled the well-known campaign "Meet someone worth deleting the app for." Insiders revealed that Jump Crypto views a16z as a model, attempting to shape Kariya into a figure similar to "blockchain philosopher" Chris Dixon. Do Kwon's high-profile behavior may also have been a strategy; court documents show that one of Kariya's senior aides exchanged emails privately with the head of Terraform Labs' PR department to discuss how to increase Kariya's exposure.

However, behind the scenes, according to the whistleblower Hunsaker, Bill DiSomma still holds most of the power in Jump Crypto—"He (Bill DiSomma) leads that team, while Kariya is largely the public face of Jump Crypto."

Stablecoins, Not Stable

Many operations of Jump Crypto in the cryptocurrency field have attracted attention, but Terraform Labs is the "crown jewel" among them.

Jump Crypto has never directly invested in Terraform in traditional equity form but has been its main market maker. Meanwhile, Kariya developed a strong interest in Kwon and established a relationship tinged with admiration. The founder of Terraform is only a few years older than him, but he has made a name for himself in the noisy cryptocurrency community, becoming a figure on par with big names like SBF.

Court documents reveal that Kariya and Kwon would send messages on the privacy-focused social platform Signal, covering business plans and casual chats.

In February 2021, Kariya texted: "I think by the end of this year, I also have to raise a dog named Terra."

Kwon replied, "Name it Luna. That way, it matches my dog."

Kwon also mentioned that Kariya could privately profit from LUNA held by Jump: "I hope you can benefit from it… it's better than just making Bill DiSomma rich, right? Haha."

The full details of the business cooperation between Jump and Terraform only surfaced years later, in early 2023, when the SEC filed a lawsuit against Terraform and Kwon months after Terra's final collapse. The SEC made a stern accusation, stating that Jump did not act as a neutral market maker, as its revenue expectations could be linked to Terraform's success through options, and Jump could even participate in Terraform's internal operations, which is precisely the type of conflict of interest that traditional financial market regulations strive to avoid. A spokesperson for Jump declined to comment.

Whistleblower Hunsaker participated in the Zoom meeting in May 2021, during which UST first de-pegged, and Kariya and DiSomma reached an agreement to defend UST, bringing Jump over a billion dollars in revenue and allowing Kwon to continue pretending everything was normal. A year later, as UST ultimately collapsed, Hunsaker believed the public had the right to know the truth—he himself had lost about $200,000 in the incident.

Hunsaker first attempted to leak the truth through an anonymous Reddit post to a KOL named FatMan but failed to attract attention, so he chose to report to the SEC. As later court testimony revealed, Hunsaker disclosed everything to the lawyers.

Even so, the exact role Jump played in the Terra collapse incident remained unknown for nearly a year afterward. Meanwhile, although Jump also faced setbacks, it continued to operate. The cross-chain bridge protocol Wormhole, incubated internally by Jump, suffered a $325 million hack in February 2022, and Jump quickly intervened to fill the gap (the stolen funds were ultimately recovered in 2023); additionally, Jump may have lost over a billion dollars in the final collapse of Terra, although this figure was never confirmed; after the FTX crash, reports indicated that Jump was trapped with nearly $300 million in funds at that exchange.

Kariya continued to faithfully serve as the public face of Jump Crypto, expressing confusion over the rampant fraud exposed by FTX in a podcast. In a podcast in February 2023, Kariya stated, "We are very angry."

But ultimately, Kariya had to withdraw from the public eye. In May 2023, the SEC submitted new documents revealing that Jump was secretly supporting Terra as a trading company. Months later, both Kariya and his boss DiSomma were subpoenaed by prosecutors. Both invoked their Fifth Amendment rights.

Odaily Note: Under the Fifth Amendment of the U.S. Constitution, individuals have the right to refuse to answer questions in legal proceedings that may incriminate themselves. This is generally viewed legally as protecting defendants from being compelled to testify against themselves.

Is the Curtain Closing?

Jump is no longer the cryptocurrency giant it once was.

In recent months, the cryptocurrency market has rebounded strongly (this article was written on July 11), but Jump has mostly been a bystander. Jump's engineers are still quietly working on internal projects, including the new Solana client Firedancer. Jump continues to engage in venture capital, recently investing in Figure Markets, Coinflow, and Lava Network, but its activity has significantly decreased compared to the past.

While its reputation has taken a hit, people in the cryptocurrency industry have noticed that Jump has gradually exited the token market-making business that once earned it billions, no longer engaging in the previously lucrative trades.

When the Bitcoin spot ETF was officially launched in January, even competitors like Jane Street entered the market, but Jump chose not to participate in market-making. Meanwhile, the company has divested two flagship projects, including Wormhole. An insider revealed that when Wormhole launched in April 2024, trading volume exceeded $1 billion, but it did not hire Jump, the former parent company, as a market maker.

Although it has not been charged with any crimes, a heavy cloud of regulation still looms over Jump. When the DOJ filed a lawsuit against Do Kwon in March 2023, it mentioned Jump's role in the 2021 de-pegging incident. Meanwhile, the CFTC is also investigating Jump's cryptocurrency business.

This cloud may even extend to some of Jump's peers. Bloomberg reported last year that prosecutors had reviewed conversations among Jump and Jane Street employees in May 2022 regarding a potential rescue of UST, which ultimately did not occur. Both parties declined to comment at the time.

When Kariya appeared at the SEC hearing regarding the 2021 incident, his appearance was barely recognizable compared to his early days at Jump. He looked older than his actual age, shocked and exhausted.

After Jump's scandal broke, many began to compare Kariya to Do Kwon and SBF, but Kariya is not like his scandal-ridden peers. Founders, competitors, and investors mention Kariya's intelligence and humility when discussing him—"I don't think anyone sees him as a cunning person; I think he's a scapegoat."

Just days after news of the CFTC investigating Jump broke (on June 24), the now 28-year-old, who rose from intern to president, announced he would leave the company that made him a celebrity. Kariya wrote on X, "Today marks an endpoint in my personal journey; this is my last day at Jump."

Those close to Kariya revealed that both sides had been planning his departure for some time. Although Kariya claimed he would continue to "engage" with Jump's portfolio upon announcing his departure, his future in the cryptocurrency field appears unclear.

Jump's rise and fall in the cryptocurrency space serves as a cautionary tale, as the company attempted to leverage its deep experience in traditional finance to become a leader in an under-regulated field, trying to be everything—a Chicago-style high-frequency trading firm, a development studio, and a venture capital company—but ultimately "they still resembled a trading company too much," as noted by a competitor, who added, "Their teeth were too sharp."

Despite suffering many losses, overall, Jump likely still made money in its cryptocurrency business. However, this remains a massive failure, as high-frequency trading companies rely on the constant pursuit of the next trade, and Jump has missed many opportunities.

Finally, let's talk about the whistleblower James Hunsaker. He left Jump in February 2022 and co-founded his own cryptocurrency project, Monad, with a former colleague. They completed a $225 million funding round in April, reaching a valuation of $3 billion, with Jump not participating.