2022 has been a bumpy year for the cryptocurrency market, with one of the worst bear markets registered and the fall of some important platforms within the space. The global economy is beginning to feel the consequences of the pandemic, and clearly this has had an impact on the cryptocurrency industry.
Below is a breakdown 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 runs the popular non-fungible token (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 began its attack, five of the nine private keys for the Ronin Network’s cross-chain bridge were hacked. With this vote they authorized 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 corporation’s safety rules had to be relaxed to meet customer demand. After the initial phase of rapid development was completed, the company reduced its security procedures.
Bridge hacks have accounted for 2/3 of the $3 billion that has been stolen from DeFi.@AxieInfinity‘s @Ronin_Network The bridge hack has been the largest to date with a loss of $600 million. pic.twitter.com/5IAuTqShMO
—Messari (@MessariCrypto) August 30, 2022
The main difficulty was the lack of a properly 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, allowing them to compromise the network. When the hackers gained control of five nodes, they basically controlled more than half of the network and were free to accept or reject whatever transactions they wanted. They got ETH and USDC by faking withdrawals.
The crime occurred on March 23, but was only noticed on March 29, when a user reported that he was unable to withdraw 5,000 ETH from the Ronin Bridge ATM. After the attack, the developers of Axie Infinity raised $150 million to refund affected users.
On May 7th, when over $2 billion in TerraUSD (UST) was withdrawn (removed from the Anchor Protocol), hundreds of millions of US dollars were quickly liquidated. It is not clear if this was a deliberate attack on the Terra blockchain or a response to rising interest rates. Due to the huge cash outflow, the price of UST fell from $1 to $0.91. As a result, market players began trading $0.90 in UST for $1 in LUNA.
When a sizeable amount of UST was withdrawn, the stablecoin was depegged. LUNA availability increased as more people sold their USTs during the panic.
After this fall, cryptocurrency markets began to suspend trading pairs like LUNA and UST. After the initial accident in May, Do Kwon revealed a rehabilitation plan for LUNA, and things seemed to improve. However, the value of the coin eventually fell. It was abandoned almost as soon as it started. Finally, Terra launched an entirely new coin 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 crashed. Do Kwon and five others were detained for allegedly violating regional market restrictions.
Collapse of the capital of the three arrows
When Terra collapsed, cryptocurrency hedge fund Three Arrows Capital (3AC), which had a peak market valuation of over $560 million, suffered significantly. 3AC had invested heavily in several troubled cryptocurrency projects, including the Axie Infinity game, which lost $625 million due to a North Korean attack this year, and the centralized cryptocurrency exchange BlockFi, which laid off hundreds of employees in mid June.
The collapse of the UST investor confidence shattered and accelerated the cryptocurrency slide, which was already underway as part of a larger flight from risk. A deluge of margin calls from 3AC’s lenders sought reimbursement, but the company lacked the funds to meet the requests. In addition, many of the company’s counterparties were unable to meet the expectations of their investors, many of whom were retail investors promised a 20% annual return.
The crypto hedge fund finally crashed after making major directional operations and borrowing from more than 20 institutions, and the founders defaulted on their payments.
Because the founders did not appear in court, the lawsuit proceeded without them. In a leaked court document filed with the Singapore High Court, the Singapore government was asked to to accept liquidation procedures and work with liquidators. As liquidators attempt to liquidate Three Arrows Capital’s failed crypto business, US bankruptcy judge Martin Glenn has issued subpoenas to company founders.
The fall of Voyager Digital
On July 6, prominent cryptocurrency investment firm Voyager Digital filed for bankruptcy after crypto hedge fund 3AC defaulted on a $650 million loan. 3AC received a significant unsecured Voyager loan. When 3AC defaulted on all of its obligations and its owners left, Voyager lost a significant sum of customer money.
Transactions, withdrawals and deposits were all suspended when Voyager reported that 3AC would not pay your loan. In June, Sam Bankman-Fried, billionaire CEO of trading firms FTX and Alameda Research, presented Voyager with 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 corporation owes between $1 billion and $10 billion to its more than 100,000 debtors. Despite its debts, however, the company believes it has assets worth between $1 billion and $10 billion. They also ensure that there is enough money available to pay off the company’s unsecured creditors.
In a September court filing, insolvent cryptocurrency broker Voyager Digital revealed which would auction off its remaining assets.
Celsius drop and liquidity crisis
The value of Celsius plummeted on July 13, 2022, when a major crypto company, Celsius Network, declared bankrupt. As the price of cryptocurrencies fell, investors on the Celsius network began to withdraw their Bitcoin (BTC) farms in search of safer alternatives.
Consequently, panicked investors dumped Celsius on volume. Despite claiming they were forced to do so due to “extreme market conditions”, Celsius Network stopped BTC withdrawals, swaps and transfers on June 12. It is understandable that users of the site thought that Celsius had filed for bankruptcy and would not be able to refund their money. The value of the Celsius cryptocurrency plummeted 70% in just a few hours and fell further in the days that followed.
The crypto market has experienced a sell-off due to insecurity and falling prices of many major cryptocurrencies, which corresponded with the Celsius price falling. Additionally, due to mounting cash flow issues, Celsius announced 23% layoffs on July 3, 2022. When the time came, the company filed for bankruptcy on July 13, 2022.
centigrade 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 and its US equivalent, FTX.US, filed for Chapter 11 bankruptcy on November 11. The exchanges crashed due to illiquidity and mismanagement of money, resulting in a large number of withdrawals from fearful investors.
Following the bankruptcy announcement, FTX.US Withdrawals restricted briefly on November 11, despite previous promises that FTX.US would not be affected by FTX’s liquidity concerns. On the night of November 11, an alleged hack took over $600 million from FTX wallets. The assault was revealed by FTX on its support channel on the Telegram instant messaging network.
PSA: If you have a bank account linked to FTX US, please change your bank account password and stop sharing data immediately.
Below is a screenshot of my bank account, which they tried to access 40 minutes ago. pic.twitter.com/sdnaUFEzOW
— Mike McGuinness ᵍᵐ (@mikemcg0) November 12, 2022
According to some Twitter users, the hackers were also trying to gain access to bank accounts linked to FTX. Plaid, a company that connects consumer bank accounts with financial apps, responded to “troubling public reports” by deny FTX access to your productsclaiming they had no proof that their tools had been used illegally.
Bankman-Fried was arrested in the Bahamas on December 12 at the request of the US government, which wanted him extradited on eight criminal counts, including wire fraud and conspiracy to defraud investors. Bankman-Fried was ultimately deported to the United States and is awaiting trial after post $250 million bail.
The FTX collapse earlier in the month created 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 company had more than 100,000 creditors. Additionally, they owed $275,000,000 in debt to Sam Bankman-Fried’s US subsidiary, FTX US. The application shows that the largest customer has a balance of $28 million.
Following the demise of Three Arrows Capital, several companies, including the cryptocurrency company that operates a trading exchange and an interest-bearing cryptocurrency custodial service, ran into serious liquidity problems.
BlockFi agreed earlier this year to accept a credit package from FTX worth up to $400 million to help it overcome a liquidity squeeze caused by the exchange’s exposure to the collapse of stablecoin TerraUSD. As a result of these concerns, BlockFi was dependent on the performance of the FTX cryptocurrency exchange, which may now jeopardize its financial stability.
While 2022 may have been a difficult year for the crypto market, there may be a silver lining. Investor sentiment seems to be improving, and the crypto market has always bounced back from previous bear markets and platform crashes. The events of 2022 could pave the way for new platforms to learn from the mistakes of their predecessors.