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Cryptoassets, namely bitcoin, have been around since 2009, but their growth and significance really took off in 2021.
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Various crypto lending and investment opportunities emerged during the pandemic, some proving to be more promising than others. This year, 2022, saw a succession of crises that will reshape and redefine the market in the new year.
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Much of the funk the crypto industry finds itself in can be traced to the crash of Terra’s UST stablecoin and the resulting market chaos, which led to layoffs across the board and further signs of an industry in crisis.
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Cryptoasset losses hit both traditional investors and millennials that formed the core of the crypto-investing client base, and many people were put off by the high risks that the sharp downturn exposed.
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These are the 5 wildest moments that played out in the sector this year:
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The implosion of Terra’s UST and Luna — and the ensuing crypto turmoil
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The stablecoin TerraUSD (UST) was always meant to be worth exactly one dollar, but its price crashed below $1 in May. It wasn’t the first depeg, but it quickly became the most serious, causing widespread investor panic.
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As an algorithmic stablecoin, UST was not actually backed by US dollar-denominated assets, but was instead minted and burned by an algorithm using a bond token called LUNA, a process also known as seigniorage.
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Over $2 billion worth of UST was withdrawn from the Anchor Protocol on May 7. On the same day, 85 million UST was sold via a key UST liquidity pool on Curve Finance, and the stablecoin began its depeg against the US dollar. Consequently, more investors sold UST, leading to more minting of LUNA — and an expansion in supply of the latter.
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Once equilibrium was lost, LUNA’s price began a precipitous crash.
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The crypto industry is still reeling from the effects months later.
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Su Zhu and Kyle Davies borrowed funds from 3AC to buy a $50 million yacht
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Three Arrows Capital (3AC) co-founders Su Zhu and Kyle Davies controversially borrowed funds from the crypto hedge fund to make a down payment on a $50 million yacht.
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Although they ran 3AC and were financially its sole decision-makers, using assets from the fund for personal use is seen as objectionable behavior that warrants serious consequences.
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A global arrest warrant was issued for Do Kwon — but he’s still not caught
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South Korean developer Do Kwon, founder of the collapsed stablecoin TerraUSD, was chased by prosecutors in his home country for breaching capital markets laws.
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But Kwon has seemed unfazed by attempts to track him down, often putting out tweets and even appearing in interviews. Interpol issued a global arrest warrant, called a red notice, in his name — essentially a worldwide request to locate and arrest him. But he’s still at large.
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Kwon has chosen to keep his location hidden, although his South Korean passport has been canceled. Most recent reports claim he is now in Serbia, after traveling from South Korea to Singapore and Dubai.
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FTX’s “Lehman moment”
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A CoinDesk scoop dated Nov. 2 led to a deluge of events that ultimately resulted in FTX filing for bankruptcy. The report showed how intricately linked FTX is with Alameda Research, and it pointed the way for revelations as to how former CEO Sam Bankman-Fried had allegedly engaged in fraudulent practices to prop up the sister trading firm.
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After a flood of withdrawal requests on FTX, it soon became clear that the once-credible exchange needed emergency funding to cover an $8 billion shortfall.
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At least a billion worth of dollars in client funds have reportedly vanished from the exchange. Bankman-Fried himself lost his crypto billionaire status almost overnight, with his net worth toppling from more than $20 billion to just $100,000, as his many interrelated companies were forced into bankruptcy.
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Observers say the saga is similar to what traditional assets went through during the financial crisis of 2008, triggered by the Lehman Brothers bankruptcy. In that case, despite its huge impact on financial markets, no one went to jail. The FTX case is likely to evolve differently, as two of the key players have already struck guilty plea deals with prosecutors that should entail prison time.
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FTX execs and Sam Bankman-Fried’s parents purchased luxury properties in the Bahamas
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One of FTX’s units splurged $300 million on homes and vacation properties for its senior executives, according to Reuters.
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Among those, a vacation home worth $16.4 million was reportedly meant for Bankman-Fried’s parents — law professors at Stanford University — Joseph Bankman and Barbara Fried.
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But the former FTX CEO claimed in an interview with Andrew Ross Sorkin that the property was not intended to be theirs long term. His parents names are listed in documents as the premise’s signatories, Reuters noted, a fact which has yet to be explained.
