In 2022 crypto lost over $2T of its market cap, which was accommodated (and caused) by the detonation of several key projects, both on and off the Blockchain. This article will review the top 6 crypto failures of the year and the top 7 fields that won from this year’s bear market.
For the most valuable lessons from the 2022 crypto winter, read this article:
In a market that declined by -65% in less than a year, finding non-losers is difficult. However, 6 giants were at the heart of the market’s decline. Their losses topped the list of the year’s biggest crypto failures and contributed significantly to it happening.
The crypto sector was struck a massive hit on May 12, 2022, when Terra(LUNA) and TerraUSD (UST) prices plummeted. LUNA dropped more than 90% of its value in a few hours, while UST, a “stablecoin” tethered to the U.S. dollar, lost nearly 99%.
This tragedy reverberated across the whole crypto sector, demonstrating that only some of the best-funded and most popular projects are immune to big crashes. It also threw questions on the stability of stablecoins, which are intended to be the industry’s backbone.
Three Arrows Capital (3AC), one of the largest and most established bitcoin hedge funds, abruptly announced its closure and liquidation of all assets.
It owes a staggering $3.5B to twenty-seven entities, including digital broker Voyager. In May, the collapse of cryptocurrencies LUNA and UST precipitated the demise of 3AC.
Kyle Davies and Su Zhu formed the Singapore-based crypto hedge fund in 2012, and it was one of the first significant institutional investors in the cryptocurrency sector. It rapidly became one of the most influential players in the market for a whole decade.
However, the company’s founders have been accused of fraud and poor management, and on Jul 1, 2022, they filed for Chapter 15 bankruptcy.
In the US, Voyager Digital, a cryptocurrency lender, filed for bankruptcy in July. This transpires after 3AC failed on a $665M loan from Voyager.
Although the company signed an agreement with FTX in Sep 2022 to sell its assets for $1.4B in crypto, the deal fell through after FTX’s collapse.
However, Binance.US, one of the world’s largest CEXs, has entered into a deal to acquire Voyager’s assets and would make a $10M deposit and compensate bankrupt Voyager for “certain expenses up to $15M.”
A former most popular platform for lending cryptocurrency, Celsius declared bankruptcy after a sequence of tragic occurrences.
Celsius suffered severe financial difficulties, could not honor customer withdrawal requests and invested customer monies in high-risk investments. Moreover, the corporation has been accused of mistreating clients, abusing their privacy, and excessively investing in a new bitcoin mining operation without their consent.
The company’s issues began in Jun 2022, when it abruptly halted all withdrawals, preventing users from moving their monies elsewhere. Midway through 2022, the platform filed for bankruptcy after laying off more than 20% of its workers.
Meanwhile, it is attempting to recover $7.7M from the estate of competitor Voyager Digital.
At the end of 2022, no implosion was more spectacular than the one that destroyed FTX. The “Wolf of Wallstreet” moment of crypto saw the top crypto exchange go from $8B to bankrupt in days.
There were allegations that CEO and co-founder Samuel Bankman-Fried (SBF) redirected customer deposits to FTX’s connected trading firm Alameda Research, forcing investors to withdraw around $6B from the exchange within 72 hours.
In November, the firm filed for bankruptcy just one week after the exchange failed to merge with rival cryptocurrency exchange Binance. In Florida, a class-action lawsuit has been filed against Bankman-Fried and several celebrities who endorsed FTX.
According to PitchBook, BlockFi, last valued at $4.8B, was the most recent company to file for Chapter 11 bankruptcy following FTX’s demise.
The Crypto lender required a $400M credit arrangement from FTX to remain solvent. The corporation also reported having more than one hundred thousand debtors, with obligations and assets ranging from one to ten billion dollars.
Below are the direct and indirect winners of the 2022 crypto winner.
Cryptocurrency and DeFi melted in 2022, whereas Web3 demand is just beginning to gain momentum. In the past twelve months, Web3-related search interest has remained within 30 percent of its peak in late 2021, and the next rise may be coming.
Centralized things, such as traditional financial institutions, ordinary businesses, etc., are susceptible to several separate hazards; for instance, a single individual or a small group of people may decide to commit fraud, mismanage user cash, etc., leading to the company’s destruction. The other members, users, etc., of the system, have no input or visibility into these poor choices yet are nevertheless entirely liable for their effects.
For a decentralized system, a “complete failure of corporate controls and such a complete absence of trustworthy financial information,” as in the case of FTX, would be inherently more challenging to achieve, as in decentralized systems like DeFi, transparency and self-custody are standard features and are strictly enforced by transparent, impartial smart contracts and code.
Centralized financial systems hold user assets for and, most critically, independently of users. Despite its benefits, if the entity or system fails, these assets will too. FTX was like this. After bankruptcy, hundreds of thousands, if not millions, of consumers will receive pennies on the dollar for crypto assets worth billions of dollars. Mt. Gox’s bankruptcy proceedings remain unresolved nine years later. Decentralized financial services, goods, and solutions may allow customers to have custody of their assets to withdraw their funds in the event of project failure.
Centralized FTX died because centralization failed. Blockchain is the solution to decentralization.
According to the CCRI assessment, Ethereum’s annual electricity consumption has decreased to 2,600-megawatt hours from 23 million megawatt hours before the amalgamation. As a result, it is projected that Ethereum’s annual CO2 emissions have decreased from over 11 million tons to just under 870 — less than 100 average American homes, according to the EPA.
In a statement, CCRI co-founder and CEO Uli Gallersdorfer stated that Ethereum’s “green credentials” are now on par with other energy-efficient blockchain networks that originated with a proof-of-stake consensus architecture, as opposed to Ethereum, which only transitioned to one.
The market share of regulated, transparent, onshore, and/or audited exchanges is growing dramatically.
Customers that fled to offshore exchanges in search of larger assets/potentially unregistered securities to trade, greater leverage, and lower costs are effectively being attracted back.
According to data by Pantera Capital, the market share of exchanges like Coinbase, Kraken, Upbit, and Bitstamp has climbed by 27% since October.
DeFi is stable, unlike opaque centralized finance. Smart contracts encode engagement rules. Financial transactions should not depend on trusting a counterparty who may be tempted to mislead. The code executes the deal.
After FTX went bankrupt in late 2022, DEXs increased their crypto spot trading volume share. DEXs comprised 14% of spot trading activity in November 2022, up from 9% in October. With the rise of non-custodial wallets like the Crypto.com DeFi Wallet, customers want complete cash management.
In 2022, blockchain-based social media applications gained traction, as seen by the rapid increase in the number of unique wallets interacting with social dApps’ smart contracts.
2022 was huge for regulators, who were almost on the verge of losing control over the market due to the record growth of crypto in 2021. While the $2T market erase was a nightmare for investors, it was a golden opportunity for institutions to “prove their point” and get more aggressive with regulations.
From Europe’s MiCA to the countless suggested bills in the US and bans in Asia, the year was indeed a battle between Web3 and regulation.
The saying that “everyone is a genius in a bull market” is also true in reverse. Everyone is an excellent critique when winter is here, but that doesn’t necessarily mean they are 100% correct. Here is a prime example:
Published on Nov 30, 2022, an article named “Bitcoin’s Last Stand” claimed that crypto is on the road to irrelevance since it’s rarely used for legal transactions and all of its investment value comes from speculation.
Of course, that couldn’t be further from the truth. Bitcoin is the first cryptocurrency, and its utility has been proven countless times in the last ten year. No other currency to date could be government neutral and accessible to everyone.
Furthermore, Bitcoin doesn’t represent the whole cryptocurrency market. Yes, currently, prices might be correlated. Still, the ecosystem has grown tremendously to a point where DeFi offers solutions for every drawback BTC might have, and it’s a matter of time for they to become the preferred way of banking for everyday people.
Crypto is more relevant than ever, and all the setbacks the industry had to endure in 2022 made it more robust. While the top 6 crypto failed projects were the leading cause for a $2T wipeout, they also helped the market clean itself from unsustainable projects and masked CeDeFi institutions.
Among the fields that won from the dire conditions this year are Web3, True DeFi, DEXs, and dApps. The Ethereum network also made a significant leap with its transition to Proof-of-Stake, creating an additional foundation upon which the next bull cycle will be built.
~Share your takeaway from the 2022 crypto rollercoaster.
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