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In 2022, the median loss for the most afflicted segments—metaverse tokens, GameFi tokens, and the Solana (SOL) ecosystem—exceeds 90%. All major cryptocurrencies, including Bitcoin (BTC), Ethereum (ETH), and others, lost more than 70–80% of their value from their all-time high. Some cryptocurrency experts couldn’t recover from such a devastating decrease.
Terra (LUNA), a platform for EVM-compatible smart contracts, was one of the overhyped Ethereum (ETH) competitors of 2021. However, the majority of its TVL was focused on Anchor Protocol (ANC), a straightforward yield farming device that gave deposits made in Terra USD (UST), Terra’s now-defunct USD-pegged stablecoin, a 19% APY. In sum, Anchor (ANC) has more than $20 billion in equivalent locked up as of the first quarter of 2022.
Nevertheless, someone began ferociously sending UST to pools on the Curve Finance (CRV) DeFi and converting the tokens on USD Coin in early May 2022. (USDC). UST’s peg was lost. Do Kwon, the CEO of Terraform Labs, began adding liquidity to the UST/LUNA mechanism. However, both LUNA and UST saw values nearly zero due to a significant capital run. The blockchain for Terra (LUNA) was permanently stopped. Researchers discovered that Terraform Labs was the cause of the collapse; Do Kwon had approved large-scale UST transfers. According to reports, the founder of Terra fled to Serbia and is attempting to withdraw his Bitcoins (BTC) there.
Su Zhu and Kyle Davies, former employees of Credit Suisse and graduates of Columbia University, founded one of the most significant cryptocurrency hedge funds, Three Arrows Capital (3AC). Being an early investment in Ethereum (ETH), Avalanche (AVAX), Solana (SOL), and other companies allowed it to acquire over $20 billion in AUM. However, one of the core components of the 3AC offering was the collapsing LUNA. The team’s substantial interest in Terra (LUNA), worth over $600 million, was lost in the two weeks following the LUNA/UST collapse.
Due to losses in Terra’s Anchor Protocol, 3AC was unable to meet its margin calls on June 16, 2022, according to an FT announcement. Additionally, the company was losing money on its holdings in the Grayscale Bitcoin Trust and Staked Ether (stETH) in the Lido Finance (LDO) DeFi (GBTC). It failed to pay back its loan to crypto juggernaut Voyager in June. A BVI court liquidated the company in late July, and the 3AC management declared bankruptcy at the same time. 20 investors in 3AC collectively lost more than $3.5 billion.
Poor risk management also affected U.S.-registered creditor Voyager, which gave a $650 million unsecured loan to Three Arrows Capital although its net AUM was roughly $5.9 billion. 97% of the 3.5 million users on the platform invested less than $10,000. Voyager’s crew adopted a risky business model by providing loans to numerous trading firms and individual bitcoin traders, which ultimately led to the company’s demise. Early in July, Voyager blocked consumer funds as lenders began to withdraw their funds in large quantities. It submitted a bankruptcy petition in New York a few days later. The platform’s demise was particularly upsetting for cryptocurrency aficionados because it was targeted at small-sized retail clients.
In actuality, Celsius was the first company to publicly acknowledge its issues. The platform declared in April 2022 that it will take control of any assets owned by non-accredited investors, preventing this group of users from adding additional liquidity and reaping benefits. Users began transferring money out of the Celsius protocol in May 2022, alarmed by the UST and Terra crises. Celsius blocked the accounts of 1.7 million consumers’ money on June 12, 2022. (mostly retail investors). Early in July, it submitted a bankruptcy petition, just like Voyager. On July 14, 2022, the platform’s executives were alerted of a $1.3 billion shortfall in its balance sheet, according to Celsius’ legal counsel Kirkland & Ellis.
The most unexpected event in Web3 was the demise of Sam Bankman-cryptocurrency Fried’s exchange FTX and its affiliated crypto investment business Alameda Research. SBF and his team had made numerous agreements, appeared on Forbes’ covers, and other moves in an effort to dominate the market. However, FTX Token (FTT), the company’s native cryptocurrency, was significantly reliant on Alameda Research’s balance sheet. Due to Changpeng “CZ” Zhao, CEO of Binance, rapidly selling FTT (releasing more than $500 million in equivalent), the entire system crashed.
Investors began systematically taking their money out of FTX, as has always happened in situations like this. The site ceased allowing withdrawals, SBF resigned as CEO, and the company declared bankruptcy. In the meantime, it came to light that he was using funds from clients and investors in his own trading company, Alameda Research. Alameda Research was submerged as a result of terrible management. While the realized damages from the FTX crash reached at $9 billion in equivalent, SBF was detained and released on bail.
