RootData released the “2022 Crypto Industry Dead Project List”, which included 96 crypto projects that died this year, 28 had received funding, bringing the total ‘dead’ project financing amount to $3.605 billion, most of which were affected by the collapse of Terra in May and FTX in November.
The cryptocurrency sector experienced a particularly rough year in 2022 as failures continued to accumulate, including the demise of the FTX cryptocurrency exchange and the Terra (LUNA) ecosystem, which killed off dozens of projects regardless of the amount of money invested in them.
Terra, the beginning of the collapse of crypto projects
Crypto projects following the peak of Bitcoin’s price surge in late 2021 have begun to follow the established movement. Among them is Terra, whose collapse earlier this year led to many disasters soon after.
Due to influential investors, the Terra network and its founder Do Kwon reached the pinnacle of the cryptocurrency market before disintegrating within a short period of time in May 2022.
The market went into a panic after this crash. The cost of Bitcoin dropped to $26,000, a 60% down from its peak in November 2021, while Ethereum, the second-largest cryptocurrency, saw a 30% decline in price.
Notably, Terra’s leading lending project, Anchor Protocol, also died out quickly in May of this year.
One of the primary motivations for the creation of cryptocurrencies is to implement the Anchor Protocol. The de-pegging of the TerraUSD (UST) stablecoin, which led to the collapse of the LUNA cryptocurrency, however, caused it to be rattled.
People that staked UST received a 19.5% payout from the Anchor Protocol, but in early May 2022, some large investors withdrew their holdings, causing the amount of UST placed in Anchor to decline. Other investors were then prompted to withdraw their UST due to this knock-on impact. This resulted in a run that depegged UST and drove down the price of LUNA.
However, Three Arrows Capital, popularly known as 3AC, which had benefited greatly from Terra’s Anchor protocol, was the next significant domino to fall following Terra.
By crypto standards, co-founders Kyle Davies and Su Zhu of 3AC founded the company in 2012. The hedge fund, at its peak, was in charge of $10 billion or more. Every startup wanted that company on its cap table, and every institution was glad to lend to it, frequently with very little or no collateral required. It has a stellar reputation.
3AC had been so profitable that it gradually started making riskier bets. One such wager was a nine-figure investment in the Anchor project, which was developed by Nicholas Platt, the chief of research at Terraform Labs.
Before Terra’s collapse, at its peak, Anchor had $14 billion in UST deposited. However, that gold mine of passive income was obviously unsustainable. Investors sprinted for the door as soon as the music ended. The entire Terra ecology then collapsed as a result of Anchor’s implosion.
FTX, the fraud is well hidden
The event mentioned at the end of the year was none other than Sam Bankman-Fried’s empire, which collapsed as quickly as Terra after just over a week of the exchange’s liquidity data was discovered to be flawed.
When things started to fall apart in early November, the firm seemed determined to hold off on publicizing its Terra losses. Alameda’s financial records were leaked to Coindesk, which said that the trading company has illiquid FTT, a token launched by FTX worth billions, languishing on its balance sheet.
The company FTX, whose CEO shamed others for not joining him in aiding ailing businesses in the sector, was bankrupt itself. Additionally, it shared Terra’s insolvency with 3AC, Celsius, BlockFi, and Voyager Digital.
On-chain data analysis has revealed that Alameda Research suffered a significant loss when Terra fell in the spring. Client cash were transferred from FTX to Alameda to conceal the loss. The Commodity Futures Trading Commission has made claims that the prevalent theory is that a fictitious client account was set up to conceal Alameda’s obligations.
The action alarmed FTX clients and investors, and the ensuing bank run on. FTX quickly drained billions from the cryptocurrency exchange. Binance first stated that it intended to acquire its faltering rival and exit the market but finally changed its mind and indicated that it was unable to assist. FTX.
The recently defunct cryptocurrency trading platform. FTX, which had amassed $1.73 billion through several funding rounds from investors including Coinbase Ventures, Binance Labs, Pantera Capital, Paradigm, Sequoia Capital, and others, is one of the biggest winners of these investments.
Investors contributed a total of $788.8 million to Celsius Network, a now-defunct cryptocurrency lending platform. Meanwhile, its subsidiary FTX US received an infusion of $400 million from the Ontario Teachers’ Pension Plan Board due to regulatory reasons established in the state of California to enable access to Americans.
BlockFi is yet another unsuccessful cryptocurrency lending company that was furthermore charged by the US Securities and Exchange Commission (SEC) with having fluctuating interest rates while promoting unregistered securities.
More recently, the impact from FTX hit Genesis, the crypto lending business owned by industry-heavyweight Digital Currency Group.
At the end of November, Digital Currency Group finally spoke out about the exposure. DCG CEO Barry Silbert stated in a letter to shareholders that the firm has more than $2 billion in liabilities, including a $575 million loan from Genesis that is due in May 2023 and the $1.1 billion that 3AC is still owing at the time it filed for bankruptcy.
Before filing for Chapter 11 Bankruptcy Protection in early July, crypto asset broker Voyager Digital managed to snag investments totaling $135 million from Alameda Research, Galaxy Digital, Binance.US, and Digital Currency Group.
The beginning again
In 2022, virtually any projects, protocols, or institutions have escaped the bite of infection.
According to CoinMarketCap, the value of the cryptocurrency market, has decreased from $3 trillion in November 2021 to $800 billion today. Additionally, the story of the outbreak in 2022 starts with a charitable organization, which is a little unique, at least for crypto.
The fortunate ones are concluding the year having reduced their employment in order to survive what appears to be a more severe crypto bull market. The unfortunate ones face liquidation, legal action, and imprisonment.
The tendency for a financial crisis to spread to other institutions, markets, or regions is known as contagion, and it has proven pervasive and merciless.
Maybe after a bloody year with the market, crypto projects will be more careful when taking the next steps. However, in general terms, this is a sign that helps the industry develop sustainably.
Crypto companies then also released transparent reserve reports in an attempt to regain the trust of customers.
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