Main Crypto Failures of 2022
Dec 06, 20227 min read
By the end of 2021, at a time when the cryptocurrency market was facing rapid growth, the community had already begun to talk about crypto-winter 2022. However, some projects especially stood out and not just lost in value but produced a domino effect in the crypto sphere and caused the crypto winter to worsen.
TerraUSD (UST) was once the largest algorithmic stablecoin by capitalization, but it lost its peg to the dollar at some point. In the Terra project, instead of fiat currencies, the network’s native token, LUNA, was used to preserve the USD-UST peg. It served as an intermediary in the conversion of other cryptocurrencies to UST. To purchase UST, the user had to mint them — to do this, they had to pay for them at the current rate in LUNA. The protocol burned the received funds in LUNA and instead issued the required amount of UST. For example, if the price of LUNA was $50 per coin, the algorithm required burning two LUNA coins to create 100 UST. The same thing worked in reverse.
The stable value of UST was maintained thanks to arbitrageurs. The project was considered very promising — by March 30, it reached a historical maximum in terms of the total value locked ($28.85 billion), despite the general decline of the cryptocurrency market. However, on May 8, it turned out that the UST peg maintenance mechanisms stopped working. The changes occurred against the background of the withdrawal of 2.2 billion UST from the Anchor protocol. As a result, the token lost its dollar peg, and the LUNA cryptocurrency immediately collapsed by 96%. On May 9, UST fell to 95 cents per coin; on the 10th — to 77 cents; and on the 11th, the token was already trading at 30 cents. At the time of writing, TerraUSD (now called TerraClassicUSD) is trading at $0.02, so it is difficult to call this asset a stablecoin.
Another token that the harsh crypto winter did not regret was Harmony — it lost more than 96% in value. Harmony is an innovative project created to increase the scalability of the blockchain. The platform is designed with optimization in mind, has high throughput and low transaction fees, and contributes to creating a full-fledged decentralized economy. The Harmony protocol includes solutions that have already shown effectiveness in other projects (Omni Ledger, Google UDP, Unikernels).
In addition, the increased bandwidth allows Harmony to become the main link in such areas as the Internet of Things, financial structures, and energy networks. Based on Harmony, users can build decentralized applications and trading systems. High network throughput is achieved due to the novel consensus protocol and sharding technology. At one point, Harmony was one of the fastest-growing tokens, but with the arrival of crypto winter, the value of ONE dropped by more than 90%. Hacking one of the developments, the Horizon Bridge, does not add confidence to the project.
As a result of a hacker attack on the bridge, tokens were stolen, including Wrapped Ethereum (WETH), AAVE, SUSHI, DAI, Tether (USDT), and USD Coin (USDC), for $100 million. They were subsequently exchanged for Ethereum. Harmony ordered surveillance of the attacker through two highly reputed blockchain companies, and the FRB cooperated with the project. The Harmony team also offered a $1 million reward for the return of stolen money or information about the violator. The company noted that the incident is a humiliating and annoying reminder that there is still much work to ensure security in the crypto space.
- Ronin Network
In the list of failers, it is impossible not to mention the Ronin Network, whose token has fallen by more than 90% from its all-time high. In March, the Ronin bridge, whose blockchain was used by Axie Infinity, was hacked. The attack of cyber criminals has become one of the largest in the history of the crypto world. The attackers managed to steal about $617 million in digital currencies. The bridge between Ronin and Katana was forcibly stopped, but the hacker managed to withdraw 173,000 ETH and $25.5 million in USDC.
The programmers said that the attacker used the vulnerability and hacked the private keys to create a function of fictitious withdrawals. To do this, he used a bridge smart contract between blockchains and withdrew all assets in two transactions. He managed to forge 5 out of 9 signatures of network validators. The attacker found an option to bypass the system through a gasless RPC node. Thus, he fraudulently obtained the signature of the Axie DAO validator. It is also known that the first phase of hacking happened on March 23, 2022, when an anonymous user could not withdraw 5,000 ETH. Thus, as a result of the hacking, not only RON was affected, but also the token of the leading blockchain game AXS.
Representatives of Sky Mavis stated: this happened due to the vulnerability of the cross-chain protocol. They admitted their guilt in the exploit and said they would investigate the incident and try to reimburse all affected users.
In today’s article, we must mention the collapse of one of the most famous crypto lending platforms, Celsius. This is a centralized cryptocurrency platform whose main services until recently, were the provision of loans and deposits. The company has issued loans totaling more than $8 billion, and as of June 2022, it had 1.7 million users. Now the company is in the process of bankruptcy, is conducting legal proceedings, and does not have the means to pay debts to creditors. In August, in just ten days, the price of the native token collapsed by more than 70%.
Back in early summer, the market started talking about problems with liquidity on the platform, but the founder denied them. Then, on June 13, Celsius suddenly announced the suspension of withdrawals “to protect the community” and “due to extreme market conditions”.
After this announcement, the price of BTC decreased by 12%, the native CEL token fell by a third, and the total market capitalization of cryptocurrencies fell below $1 trillion for the first time since January 2021.
In July, Celsius cut 150 employees, hired third-party lawyers, and filed for bankruptcy in court. The company’s management has not commented on the situation for a long.
Later, from court documents, it turned out that the company’s assets amount to about $4.3 billion, and its liabilities — are $5.5 billion. However, in mid-August, it turned out that the gap was already $2.85 billion.
The creator of the project admitted that the reasons for this were incorrect investment decisions but blamed the former partner, the company KeyFi. Shortly before that, KeyFi sued Celsius, accusing the company of non-payment of funds due under the contract.
In November 2022, the cryptocurrency community experienced a huge shock — the unexpected collapse of the FTX exchange, which until recently was considered one of the largest in the world, along with Binance and Coinbase. The FTX scandal, its bankruptcy, and the robbery that followed affected the entire market, negatively affected the quotes of cryptocurrencies, and seriously shook the trust of users and investors. The founder of the platform is a young guy named Samuel Banckman-Fried. Additionally, Banckman-Fried founded the Alameda Research fund in 2017. The collapse of FTX is closely related to Alameda, and the root of what happened was precisely in the relationship between Banckman’s companies.
Before the bankruptcy, FTX had an excellent reputation (as well as Banckman‑Fried himself) and actively attracted new customers, for example, with highly tempting deposit products in BTC (5% rate) and US dollars (8%) — people sometimes took loans from ordinary banks for them. Alameda Research, in turn, was one of the largest market makers with an extensive investment portfolio. The reason for the crash was an article by CoinDesk. According to it, as of June 30, 2022, Alameda’s assets amounted to $14.6 billion, most of which were FTT utility tokens issued by FTX. That is Banckman’s second company.
After the scandalous disclosure of CoinDesk, Binance’s CEO announced on Twitter that Binance intends to liquidate all its assets in FTT. Then users panicked, and a massive outflow of funds began from FTX. It seemed that the situation could be saved at some point when Banckman-Fried and Changpeng Zhao planned to conclude a deal. However, the deal fell through. Ultimately, on November 11, 2022, Banckman‑Fried announced on Twitter that FTX and Alameda would initiate bankruptcy proceedings.
The BlockFi cryptocurrency platform has announced the suspension of withdrawals for customers. This decision is due to an unclear situation with FTX, FTX US, and Alameda companies.
BlockFi, founded in 2017, provides loans in stablecoins secured in cryptocurrency and offers profitability on deposits. Among the company’s investors are such major industry players as Galaxy Digital and Akuna Capital, and Fidelity, Morgan Creek, and Coinbase were also involved in its development.
In its announcement, BlockFi wrote that due to the lack of clarity regarding the status of FTX and Alameda, it could not conduct business as usual, so it is forced to limit activity on the platform. In addition, the company asked customers to refrain from depositing funds both to the BlockFi Wallet and deposit accounts.
The platform promised to provide additional information later. The time and date of the suspension of operations are not indicated in the message. However, judging by the comments of users, some of them can no longer withdraw funds.
Earlier this year, the company faced difficulties. In June, it announced the reduction of 20% of its staff. In early July, the American division of the FTX exchange concluded a loan deal with BlockFi for $400 million with the possibility of buying the platform for $240 million.
The rate of the Solana token has fallen rapidly. This is because crypto projects have started to leave the blockchain, and investors are getting rid of assets in associated coins.
The Solana blockchain is a network for fast transactions with high throughput. It was founded in 2017 by Anatoly Yakovenko from Solana Labs. While other blockchains suffer from scalability and speed issues, Solana uses an algorithm that allows processing thousands of transactions per second, for which it has been nicknamed the “Ethereum killer”.
FTX Exchange and Alameda were major partners of the Solana project and actively supported it. After the FTX group companies filed for bankruptcy, the Solana Foundation team published data on their assets related to Sam Banckman-Fried’s companies.
Solana said it had 134.54 million SRM tokens and 3.43 million FTT tokens on FTX, which were worth about $107 million and $83 million, respectively, the day before FTX was blocked. Also, the project team reported that Alameda and FTX purchased more than 50 million SOL tokens from the Solana Foundation and more than 7.5 million SOL from Solana Labs. Against the background of the FTX events, massive sales of the SOL token began to occur, leading to a drop in value.
The DeFi projects Mango Markets and Cashio have completely left the blockchain. The Nirvana protocol reduced funds in Solana by 95%, Solend by 90%, and Lido by 76%.
On November 17, the Binance exchange announced the temporary suspension of accepting USDC and USDT deposits on the Solana blockchain without explanation. Also, the stablecoin deposits in the Solana network were suspended by OKX, Bybit, BitMEX, KuCoin, MXC, and Crypto.com.