2022 has been a bumpy year for the crypto market, recording one of the worst bear markets and the collapses of several major platforms in the space.
Axie Infinity’s Ronin bridge hacked
In March 2022, Ronin, Axie Infinity’s popular NFT blockchain network, was hacked causing a loss of $625 million. Hackers stole 173,600 Ether and $25.5 million in Coins from Ronin Bridge in two transactions.
When Lazarus Group initiated the attack, five of the nine private keys for the Ronin Network cross-chain bridge were hacked, allowing the attacker to make two withdrawals totaling $25.5 million in USDC and 173,600 ETH.
According to the Ronin development team, the problems of Axie Infinity began in November 2021, when its user base had expanded to an uncontrollable level. Therefore, the safety rules must be relaxed to meet the needs of customers. After completing the initial rapid development phase, the company eased the safety procedures.
The main difficulty is the lack of a suitable decentralized network created by game developer Sky Mavis. Hackers gained access to the private keys of 5 of the 9 Ronin Chain validator nodes, allowing them to compromise the network.
Hackers then gained control of 5 nodes, they essentially controlled more than half of the network and were free to accept or reject any transaction, obtaining ETH and USDC through forging withdrawals.
The incident happened on March 23, but it was only noticed on March 29, when users reported being unable to withdraw 5,000 ETH from Ronin Bridge. Following the attack, the developers of Axie Infinity raised $150 million to reimburse affected users.
The Fall of TerraUSD/LUNA
On May 7, when over $2 billion in TerraUSD (UST) was unstacked (removed from the Anchor Protocol), hundreds of millions of dollars were quickly liquidated. Due to the large outflow, the price of UST fell from $1 to $0.91. As a result, investors start trading $0.9 in UST for $1 in LUNA.
When a significant amount of UST was moved out, stablecoins decreased in value. LUNA availability increased as more people sold their USTs in a panic. After this crash, the crypto markets began to suspend trading pairs with LUNA and UST.
After the first drop in May, Do Kwon revealed the recovery plan for LUNA and things seem to have improved. However, Terra launched a brand new currency called LUNA 2.0.
Investors lost a total of $60 billion due to the panic sell-off that accompanied the declines of TerraUSD Classic (USTC) and Luna Classic (LUNC).
On September 14, a South Korean court issued an arrest warrant for Do Kwon and five others were detained for allegedly violating regional market restrictions.
Three Arrows Capital bankruptcy
When Terra collapsed, the hedge fund Three Arrows Capital (3AC), which had a market valuation of more than $560 million, suffered heavy losses. 3AC invested in a number of troubled crypto projects, including Axie Infinity, which lost $625 million in the Ronin Bridge attack, and centralized cryptocurrency exchange BlockFi, which laid off hundreds of employees in mid-June.
The collapse of the UST destroyed investor confidence and accelerated the cryptocurrency’s plunge. In addition, many of the company’s partners were unable to live up to investors’ expectations while promising annual returns of up to 20%.
This hedge fund eventually collapsed after taking on a business orientation, borrowing from more than 20 institutions, but the founder was unable to repay the debt in full.
In leaked court documents filed with the Singapore High Court, the Singapore government was asked to accept liquidation proceedings. As liquidators tried to close Three Arrows Capital’s business, the United States Bankruptcy Judge, Martin Glenn, issued subpoenas to the company’s founders.
Voyager Digital went bankrupt
On July 6, a popular crypto investment firm, Voyager Digital, filed for bankruptcy after hedge fund 3AC failed to repay a $650 million loan. 3AC received the loan from Voyager without collateral. When 3AC failed to meet all of its obligations, Voyager lost large sums of customer money.
Voyager stopped trading, withdrawing and depositing money after 3AC said it could not repay the loan. In June, Sam Bankman-Fried, CEO of the FTX empire and Alameda Research, gave Voyager a $500 million line of credit to help them get over the crisis.
On July 5, 2022, Voyager Digital Holdings filed for bankruptcy in the Southern District Court of New York. According to Voyager Digital, the group owed 100,000 creditors between $1 billion and $10 billion. They made sure that there was enough money to pay creditors.
In a court filing in September, Voyager Digital revealed that it would auction off its remaining properties.
Celsius’s collapse and liquidity crisis
Celsius value plummeted on July 13, 2022, when one of the major crypto firms, Celsius Network, declared bankruptcy. While cryptocurrency prices fell, investors on the Celsius network began withdrawing their Bitcoin holdings for safer alternatives.
Despite claiming that it was forced to do so due to severe market conditions, Celsius Network halted BTC withdrawals, swaps, and moves on June 12. Accordingly, Celsius declared bankruptcy and could not be able to refund investors. The value of Celsius (CEL) plummeted by 70% in just a few hours and fell even further in the following days.
The crypto market saw a large sell-off due to the insecurity and the fall of Celsius. In addition, due to liquidity issues, Celsius announced the layoff of 23% of its staff on July 3, 2022, and subsequently filed for bankruptcy on July 13, 2022.
Celsius has total liabilities of $6.6 billion and assets of $3.8 billion, and a loss of $1.2 billion on the company’s balance sheet.
The FTX crisis
FTX and its equivalent US exchange, FTX.US, filed for Chapter 11 bankruptcy on Nov. These exchanges collapsed due to lack of liquidity and poor money management, leading to a large number of investors withdrawing their funds.
Following the bankruptcy announcement, FTX.US briefly restricted withdrawals on Nov.11, despite earlier promises that the exchange would not be affected by its liquidity concerns.
On the evening of Nov.11, an attack took more than $600 million from the FTX wallet. According to some Twitter users, the hacker tried to gain access to bank accounts linked to FTX.
Plaid, which connects consumers’ bank accounts with financial applications, responded to relevant public reports by denying FTX access to its products.
Bankman-Fried was arrested in the Bahamas on December 12 at the request of the US government. Bankman-Fried was eventually deported to the United States and is awaiting trial after posting a $250 million bail.
BlockFi went bankrupt
The crash of FTX earlier this month created fear and uncertainty across the market. BlockFi, another exchange, also filed for Chapter 11 bankruptcy on Nov. With assets and liabilities ranging from $1 billion to $10 billion, the company had more than 100,000 creditors. In addition, they had a debt with FTX.US worth $275 million. The bankruptcy filing showed that the biggest customer has a balance of $28 million.
After the collapse of 3AC, many companies in the market had serious liquidity problems.
Previously, BlockFi agreed to accept $400 million worth of credit from FTX to help it overcome liquidity constraints, due to the exchange’s exposure to TerraUSD, so BlockFi was dependent on FTX’s performance. The failure of the FTX empire led to the BlockFi crisis.
Sum up
Although 2022 may be a difficult year for the crypto market, there is still hope for the future ahead. Investor sentiment seems to be improving and the crypto market has always recovered from previous bear markets. Events in 2022 can leave many lessons for future development projects.
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