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Top 10 events that changed the course of cryptocurrency history in 2022.

22-12-27 14:30

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Original Title: "A Review of the Ten Major Events that Changed the History of Cryptography in 2022"

Source: The Block

Translated by: DeFi Road

2022 is a year that defines cryptocurrency, despite the unfavorable situation. All greed and prosperity are just crumbling in a spectacular way.

At the beginning of 2022, people began to pay attention to the timing of The Merge implementation, but now it has almost become a supporting role, overshadowed by a large number of scandals and closures. The collapse of Luna has triggered a wave of spreading among previously respected cryptocurrency companies. One after another, lending companies or trading platforms went bankrupt, and it all ended this year with FTX's implosion, which was once the third largest trading platform in terms of trading volume.

During this year, a common phrase in the cryptocurrency industry was: "How much worse can the situation get?" For some reason, this question was always answered with a new low and often ended in bankruptcy.

However, 2022 is not all pain. Ukraine successfully raised nearly $100 million through cryptocurrency donations, demonstrating the effectiveness of the technology. Owners of Bored Ape Yacht Club (BAYC) saw a drop worth hundreds of thousands of dollars - as long as they did not lose their Token in the many attacks against Bored Ape owners. Finally, the Ethereum blockchain has reached its most important moment to date as it successfully implemented The Merge.

Here are the top 10 stories in the cryptocurrency industry over the past year.

FTX Crash

A CoinDesk article revealed Alameda Research's balance sheet, which quickly turned into a Twitter spat with former FTX CEO Sam Bankman-Fried accusing competitor Binance of spreading false rumors. At the time, Binance CEO Zhao Changpeng was selling FTX's native token FTT and expressing concerns about the health of the trading platform. In response, SBF attempted to assure customers that FTX was "fine".

However, the customer did not buy it. During the first weekend of November, users of the trading platform withdrew approximately $6 billion and placed the funds in other trading platforms or their own wallets for safekeeping. There were still many speculations and uncertainties surrounding the status of the trading platform during the run, causing many people to withdraw for safety. But it was only when withdrawals were halted that the situation became truly terrifying.

On November 8th, FTX acknowledged Game Over and stated that it is seeking to be acquired by Binance - this led to a catastrophic collapse in the price of FTT.

A few days later, it filed for bankruptcy.

FTX Bankruptcy

Afterwards, we discovered that the bankruptcy of FTX was an absolute historic disaster. It appears that customer funds were mixed together between the trading platform and Alameda, lacking risk control, and customer funds were misappropriated to repay out-of-control margin positions.

FTX's newly appointed CEO, John J. Ray III, summed it up well: "In my career, I have never seen a company with such a complete failure of control and a complete lack of reliable financial information."

Bankman-Fried has been arrested and extradited to the United States, and now faces up to 115 years in prison. FTX creditors may now face a lawsuit lasting up to ten years, just like the Mt. Gox creditors. Mt. Gox, once the largest trading platform, collapsed in 2014, and creditors who lost funds are still waiting for compensation.

Luna Epic Death

Although the FTX scandal can be considered the most destructive event in the cryptocurrency industry (in terms of actual losses rather than book losses), Luna's previous crash may have been the event that triggered all of these consequences.

Luna is a novel idea for creating algorithmic stablecoins, with the Token designed to be pegged to the US dollar without the need for direct collateral. It involves a freely floating Token called LUNA and a stablecoin called UST. The problem is that it has a design flaw: its basic structure means that if there is a bank run on the Token, it will spiral into a death spiral, causing its value to plummet continuously.

And this is exactly what is happening with Luna. Due to core mechanism issues, as UST loses its peg to the US dollar and the situation worsens, more and more LUNA Tokens are being minted on the network in an attempt to salvage the value of UST. This has led to a decrease in the value of LUNA Tokens, which in turn has caused an exponential increase in the amount of minted coins. During the collapse of Luna, its supply increased from 340 million Tokens to 65 trillion Tokens. Its price went in the opposite direction.

The final result was that Luna's market value of 22 billion US dollars disappeared, wiping out the substantial gains of many retail and institutional investors. Although Luna restarted under a new name, it did not solve the disaster, and the broader cryptocurrency industry is still cleaning up the aftermath.

Three Arrows Capital (3AC) bankruptcy

Before the collapse of Luna, Three Arrows Capital was widely regarded as one of the best hedge funds in the cryptocurrency industry. Its reputation was so high that companies such as Genesis, Blockchain.com, and Voyager Digital provided billions of dollars in loans to the company.

However, the fund was repeatedly hit until it was eliminated. Kyle Davis, co-founder of 3AC, said the fund suffered a $600 million loss from the Luna crash alone, including a $200 million initial investment. This had a destructive impact on 3AC, but not a fatal blow. Then it faced liquidity tightening, lenders calling in loans, and the prices of many of its major cryptocurrencies held dropping, even the prices of Grayscale Bitcoin Trust and stETH were falling. All of this brought further pain to the fund.

Davis claimed that the final blow to 3AC was when his remaining position on FTX was liquidated. He further claimed that Alameda Research had known his liquidation line for some time. Since then, the company has applied for a complete asset liquidation, with creditors filing claims of up to $3.5 billion.

Ukrainian cryptocurrency donations and almost conducted airdrop

Aside from various bankruptcy liquidation events, earlier this year we saw a country utilize the global influence provided by cryptocurrency to raise funds. In the early stages of the Russia-Ukraine conflict, Ukraine requested donations in Bitcoin, Ethereum, and stablecoin USDT. The country received nearly $100 million in cryptocurrency donations from individuals around the world.

These donations were driven by an interesting strategy. During the donation period, Ukraine announced its intention to airdrop Tokens to donors. This caused donations from those who speculated the potential value of the airdropped Tokens to increase rapidly, rather than being made for humanitarian reasons. However, the airdrop plan was suddenly cancelled and the plan was announced to be changed to selling NFTs.

The result is that this NFT sales event failed. They only raised about $1.2 million in the end, which is only a small part of their broader crypto donations.

Yuga Labs had a glorious year

In March, owners of every NFT held by Bored Ape Yacht Club (BAYC) received an ApeCoins Token airdrop, regardless of whether they held a Bored Ape Yacht Club (BAYC), Mutant Ape Yacht Club (MAYC), or an additional NFT from the Kennel Club collection. The airdrop received by a BAYC was initially worth approximately $140,000.

Some "scientist" traders seem to be very cunning about airdrops. Someone borrowed a set of five BAYCs from a vault designed specifically for dividing NFTs, and the holder created a derivative interchangeable Token, each of which claimed to represent a corresponding amount of NFTs. For example, if a holder owns 2% of the Token, then he theoretically owns 2% of the NFTs.

During a quick transaction, they withdrew BAYC from the pool, claimed the airdrop, and returned them - earning $1.1 million in the ApeCoin Token airdrop. This only took them one day.

BAYC series. Image from: Yuga Labs.

At about this time, there were rumors that something bigger was going to happen. The Block reported that Yuga Labs, the issuing company of BAYC, is planning to sell virtual land in the metaverse for its upcoming game. Indeed, in May, Yuga Labs sold 55,000 pieces of land for a record-breaking $317 million in its NFT minting program. At the time, Yuga Labs even hinted that it might launch its own blockchain, but so far there have been no results.

Axie Infinity: Ronin Hack Incident

Although Axie Infinity is the largest blockchain game in the cryptocurrency industry, its underlying blockchain network, Ronin, ultimately became the foundation of the largest hacking incident in the industry. After a hacker took control of five out of its nine validators, the network lost $540 million worth of cryptocurrency.

A few months later, The Block discovered that the hacker attack was caused by a senior engineer from Sky Mavis (the company behind Axie Infinity) who was deceived into applying for a false job. After multiple interviews, the engineer received a quote in the form of a PDF document, which contained spyware. This gave the hackers the opportunity to control four validators, but they still needed one more to fully control the system. They managed to obtain the fifth validator from Axie DAO validators.

After the hacker intrusion incident, Sky Mavis announced that the number of validators on the network would be increased to 17. The hacker group was later confirmed to be the Lazarus group, a North Korean hacker group.

Celsius 的前进脚步就此而止

Celsius's progress comes to a halt.

Another bankruptcy event. After the collapse of Luna, the financials of the cryptocurrency loan company Celsius Network have a major loophole. It is currently unclear how this happened, but the company seems to have countless high-risk lending strategies and is willing to invest client funds in experimental DeFi platforms such as Badger Finance.

In July, Celsius filed for bankruptcy protection under Chapter 11 of the US Bankruptcy Code. Court documents show a $1.2 billion hole in its balance sheet, including its own CEL platform, which was valued at $600 million at the time. As assets, however, these Tokens no longer hold that value and cannot be sold for anything close to that amount.

Genesis, Grayscale and a series of concerns about DCG

Digital Currency Group (DCG) is a giant in the cryptocurrency industry, with competitors such as Grayscale, Genesis, and CoinDesk, and investments throughout the entire crypto space. However, it has not been immune to the Luna crash and the broader market downturn.

Genesis is the main reason for concern. The company provided a loan of $2.3 billion to Three Arrows Capital, leaving a shortfall of over $1 billion. DCG took on this responsibility to help protect the company. However, when FTX collapsed, Genesis suffered further setbacks as it had $175 million funds left on the FTX trading platform, which cannot be recovered now. The company is now in dire straits and on the brink of bankruptcy.

Grayscale is the main profit-making organization of DCG, bringing in huge revenue through its 2% annual fee. Its flagship Bitcoin Trust (GBTC) manages $10.6 billion in assets. However, the value of GBTC has fallen far below the value of its underlying asset, Bitcoin, making it difficult for investors to cash out. DCG has attempted to provide assistance by purchasing $388 million worth of stocks and ultimately plans to purchase up to $1 billion worth of stocks. This has been futile as GBTC's negative premium has dropped to 50%, causing headaches for all GBTC holders, including DCG.

Ethereum has undergone The Merge

Despite the definition of cryptocurrency being defined by greed and corporate failures in 2022, we still see many advancements in the underlying technology. Several newly designed blockchains have been launched along with improvements in new second-layer networks and zero-knowledge technology. But the biggest event is the Ethereum merge.

Ethereum has long awaited the smooth transition from Proof of Work (PoW) to Proof of Stake (PoS). The network has bid farewell to miners and welcomed a new set of validators to run the network. This has had a significant impact on the network's environmental footprint, reducing energy consumption by over 99% and making NFT activities more climate-friendly.

The token economics of Ethereum has undergone significant changes. Since the merge, the network's inflation rate is much lower, with fewer tokens paid to validators compared to miners. Additionally, as more people use it, the Ethereum network continues to burn tokens. In fact, the inflation rate of the Ethereum network is close to zero and sometimes even negative - the circulating supply is actually decreasing.