The 7 biggest crypto collapses of 2022 the industry would like to forget

The 7 biggest crypto collapses of 2022 the industry would like to forget

2022 has been a bumpy year for the cryptocurrency market, with one of the worst bear markets on record and the fall of some major platforms in the space. The global economy is beginning to feel the effects of the pandemic, and this has clearly had an impact on the crypto industry.

Below is a rundown of some of the biggest disappointments in the crypto space this year.

Axie Infinity’s Ronin Bridge hacked

In March of this year, Ronin, the blockchain network that powers the popular NFT crypto game Axie Infinity, was hacked for $625 million. The hacker took 173,600 Ether (ETH) and 25.5 million USD Coin (USDC) from the Ronin bridge in two transactions.

When the Lazarus Group launched its attack, five of the nine private keys of Ronin Network’s cross-chain bridge were hacked. With this vote, they approved two withdrawals totaling $25.5 million in USDC and 173,600 ETH.

According to the Ronin Group, Axie Infinity’s problems began in November 2021, when its user base had expanded to an unsustainable size. Consequently, the company’s safety rules had to be relaxed to meet the customers’ demands. After the initial phase of rapid development was completed, the firm reduced its security procedures.

The main problem was the lack of a suitable decentralized network created by game developer Sky Mavis. The hacker gained access to the private keys of five of Sky Mavis’ Ronin Chain’s nine validator nodes, enabling them to compromise the network. Once the hackers gained control of five nodes, they essentially controlled over half of the network and were free to accept or reject whatever transactions they wanted. They obtained ETH and USDC via fake withdrawals.

The crime occurred on March 23, but was not noticed until March 29, when a user reported that he was unable to withdraw 5,000 ETH from the Ronin Bridge ATM. In the wake of the attack, Axie Infinity developers raised $150 million to refund the affected users.

TerraUSD/LUNA Collapses

On May 7, when over $2 billion in TerraUSD (UST) was liquidated (removed from the anchor protocol), hundreds of millions of US dollars were quickly liquidated. It is unclear whether this was a deliberate attack on the Terra blockchain or a response to rising interest rates. Due to the huge outflow of cash, the price of UST fell from $1 to $0.91. As a result, market participants began trading $0.90 in UST for $1 in Terra (LUNA).

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When a significant amount of UST was moved out, the stablecoin depegged. Availability of LUNA increased as more people sold UST during the panic.

After this fall, cryptocurrency marketplaces began suspending trading pairs such as LUNA and UST. After the first accident in May, Do Kwon revealed a rehabilitation plan for LUNA and things seemed to be improving. However, the currency’s value eventually declined. It was abandoned almost as soon as it began. Finally, Terra launched a brand new currency known as LUNA 2.0.

Investors lost a combined $60 billion due to the panic selling that accompanied the decline of TerraUSD Classic (USTC) and Luna Classic (LUNC), a related token.

On September 14, a South Korean court issued an arrest warrant for Do Kwon. This happened four months after Terraform Labs’ LUNA and UST tokens collapsed. Do Kwon and five others were detained for allegedly violating regional market restrictions.

Three Arrows Capital collapses

When LUNA and Terra collapsed, crypto hedge fund Three Arrows Capital (3AC), which had a peak market cap of over $560 million, suffered significantly. 3AC had invested heavily in several troubled cryptocurrency projects, including play-to-earn game Axie Infinity, which lost $625 million to a North Korean hack this year, and centralized cryptocurrency exchange BlockFi, which laid off hundreds of employees in mid-June. .

The UST collapse shattered investor confidence and accelerated the avalanche of cryptocurrencies, which was already underway as part of a larger flight from risk. A flood of margin calls from 3AC’s lenders sought repayment, but the firm lacked the funds to meet the requests. In addition, many of the company’s counterparties failed to meet investors’ expectations, many of whom were private investors promised 20% annual returns.

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The crypto hedge fund eventually collapsed after taking on large directional trades and borrowing from over 20 institutions, and the founders defaulted on payments.

Because the founders would not appear in court, the lawsuit continued without them. In a leaked court document filed in the Singapore High Court, the Singapore government was asked to accept liquidation cases and work with liquidators. As liquidators try to wind up the failed crypto business of Three Arrows Capital, US Bankruptcy Judge Martin Glenn has issued subpoenas to the company’s founders.

Voyager Digital’s Autumn

On July 6, prominent investment firm Voyager Digital filed for bankruptcy after crypto hedge fund 3AC defaulted on a $650 million loan. 3AC received a substantial unsecured loan from Voyager. When 3AC defaulted on all its obligations and the owners left, Voyager lost a significant amount of customer money.

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Trading, withdrawals and deposits were all suspended when Voyager reported that 3AC would not repay the loan. In June, Sam Bankman-Fried, the billionaire head of trading firms FTX and Alameda Research, gave Voyager a $500 million line of credit to help them weather the market collapse.

On July 5, 2022, Voyager Digital Holdings filed for bankruptcy in the Southern District of New York. According to Voyager Digital, the company owes between $1 billion and $10 billion to its more than 100,000 debtors. Despite the debt, however, the company believes it has assets worth between $1 billion and $10 billion. They also guarantee that sufficient cash is available to pay off the company’s unsecured creditors.

In a court filing in September, insolvent cryptocurrency broker Voyager Digital revealed it would auction off its remaining assets.

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Celsius crash and liquidity crisis

Celsius’ value dropped on July 13, 2022, when one of the most important crypto companies, the Celsius Network, declared bankruptcy. As the price of cryptocurrencies fell, investors on the Celsius network began withdrawing their Bitcoin (BTC) holdings in search of safer alternatives.

Consequently, panicked investors abandoned Celsius in volume. Despite being forced to do so due to “extreme market conditions”, the Celsius Network halted BTC withdrawals, swaps and transfers on June 12. Users of the website understandably believed that Celsius had declared bankruptcy and would not be able to refund their money. The value of the Celsius cryptocurrency fell by 70% in just a few hours and fell further in the days that followed.

The crypto market has seen a significant sell-off due to the uncertainty and falling prices of many major cryptocurrencies, which corresponded with the drop in the Celsius price. Additionally, due to escalating cash flow problems, Celsius announced 23% layoffs on July 3, 2022. When the time came, the company filed for bankruptcy on July 13, 2022.

Celsius had total liabilities of $6.6 billion and assets of $3.8 billion, resulting in a $1.2 billion hole in the company’s balance sheet due to the court ruling.

FTX collapse

FTX and its US equivalent, FTX.US, filed for Chapter 11 bankruptcy on November 11. Stock markets collapsed due to lack of liquidity and mismanagement of money, resulting in large numbers of withdrawals by frightened investors.

Following the bankruptcy announcement, FTX.US briefly restricted withdrawals on November 11, despite earlier promises that FTX.US would be unaffected by FTX’s liquidity concerns. On the evening of November 11, an alleged hack took more than $600 million from FTX wallets. The abuse was revealed by FTX in its assistance channel on the instant messaging network Telegram.

According to some Twitter users, hackers also attempted to gain access to FTX-linked bank accounts. Plaid, a company that connects consumer bank accounts with financial applications, responded to “regarding public reports” by denying FTX access to its products, claiming it had no evidence that its tools had been used illegally.

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Bankman-Fried was arrested in the Bahamas on December 12 at the request of the US government, which wanted him extradited for eight criminal offences, including wire fraud and conspiracy to defraud investors. Bankman-Fried was eventually deported to the United States and is awaiting trial after posting $250 million bail.

BlockFi Bankruptcy

The collapse of FTX earlier this month generated fear and uncertainty in the market. BlockFi, another cryptocurrency exchange, filed for Chapter 11 bankruptcy on November 28. With assets and liabilities ranging from $1 billion to $10 billion, the firm had over 100,000 creditors. In addition, they owed $275,000,000 to Sam Bankman-Fried’s American subsidiary, FTX US. The application shows that the largest client has a balance of $28 million.

After Three Arrows Capital’s demise, several firms, including the crypto company that operates a trading exchange and an interest-bearing custodian service for cryptocurrencies, had serious liquidity problems.

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BlockFi earlier this year agreed to accept a credit package from FTX worth up to $400 million to help it withstand a liquidity constraint caused by the exchange’s exposure to the TerraUSD stablecoin collapse. As a result of these concerns, BlockFi was dependent on the performance of cryptocurrency exchange FTX, which may now jeopardize its financial stability.

While 2022 may have been a tough year for the crypto market, there may be a silver lining. Investor sentiment seems to be improving and the crypto market has always recovered from previous bear markets and platform collapses. The events of 2022 could pave the way for new platforms to learn from the mistakes of their predecessors.