From Terra/LUNA and Three Arrows Capital to Celsius and FTX, a lot of cryptocurrency firms — particularly crypto lenders — went up in smoke.
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It's hard not to look back at 2022 as a year dominated by the crash of the UST algorithmic stablecoin and the string of insolvencies and bankruptcies that followed.
The $48 billion fall of UST and its partner token LUNA led to a string of bankruptcies by a half dozen of the top crypto lenders — and then the spectacular implosion of the second-largest global cryptocurrency exchange, FTX.
What were the 50 biggest crypto stories of 2022? You decide!
While the first half of crypto winter saw the idea of Bitcoin as digital gold go up in smoke and a series of nine-figure DeFi project hacks, the second, fiercer half of the crypto winter began on May 8, with the bankruptcies that followed damaging the reputation of the industry as a whole just as it went mainstream.
Since then, Bitcoin — which had dropped from almost $69,000 to $34,000 — halved again. And at about $17,000, it is now down 75% from November 2021's all-time high.
But even worse, millions have seen their crypto investments disappear — lost first to crypto lending schemes offering returns that proved far too good to be true, and second to alleged malfeasance by one of the most popular exchanges on the planet.
In many ways, the bankruptcies have done much more damage to digital assets than the falling price of always-volatile Bitcoin, as it resurrected the idea of crypto as far too risky. The goings on at FTX have also sparked fresh calls for stricter regulation — and even outright bans.
In the course of that, many centralized and DeFi projects were lost. Here's a look back.
Wonderland
While it wasn't technically a bankruptcy, the Wonderland DeFi project collapsed and was shut down by its founder after it was revealed that one of its leaders was an infamous fraudster and ex-convict, Michael Patryn.
Credit card fraud conviction aside, Patryn's name was already mud as a co-founder of QuadrigaCX, a failed crypto exchange whose demise remains one of the strangest stories in crypto. The largest exchange in Canada shut down abruptly in January 2019, with customers being told that its CEO had died suddenly in India, taking all of the private key codes holding $190 million to the grave — until investigators discovered that its cold wallets were largely empty and he'd been running a Ponzi scheme.
While Patryn had departed QuadrigaCX years earlier, Wonderland's community — otherwise known as "Frog Nation" — exploded when he was unmasked on Twitter as "0xSifu" — its treasury manager. Things only got worse when Wonderland co-founder Daniele Sestagalli admitted that he knew of Patryn's past but believed in second chances.
While 0xSifu/Patryn was overwhelmingly ousted in a community vote, another one asking if the project should be wound down and funds returned came out narrowly in favor of continuing, 55% to 45%. Nonetheless, Sestagalli declared:
"Wonderland experiment is coming to an end. It is clear from the vote that the community is divided. The core and heart of Wonderland is still the community. If we cannot find agreement on whether to continue or not, it means that we failed."
Terraform Labs
For someone who claims not to be on the run, Do Kwon — co-founder and CEO of the company that created the UST algorithmic stablecoin ecosystem that imploded in May — sure is hard to find.
South Korean prosecutors have issued an arrest warrant for him on charges of violating its capital markets law — he is said to have "deceived investors" through the "flawed" UST stablecoin — and Interpol has issued a red notice.
It's not clear how well that will stand up, but with some 280,000 South Koreans having invested in UST and LUNA, they're apparently going to try.
The way the algorithmic stablecoin maintained its dollar peg without a backing reserve of dollars like USDC and USDT is technical, and used very complex algorithms in the smart contract that managed the DeFi project. But it comes down to an automated arbitrage system — if the price of UST fluctuated high or low, LUNA traders were incentivized to buy and sell that token in a way that affected the stablecoin's price.
Kwon was a world-class marketer — running his algorithmic stablecoin's market capitalization from less than $3 billion in November 2021 to more than $18 billion on May 8. By May 15, it was back below $2 billion and ran down close to zero over the next few weeks. In those first seven days, the dollar-pegged stablecoin dropped below $0.18, and was under a penny by mid-June.
Bitcoin — and really the whole crypto market — collapsed with it, dropping from $39,000 on May 4 to $29,000 on May 11, and then again from $29,000 to $19,000 in the second week of June.
Kwon was never accused of being humble. He referred to himself as "the Master of Stablecoin" and had a penchant for slashing back at Twitter opponents with comments like "continue in poverty ser."
Then there was the time — in a comment that really, really did not age well — he replied to a long thread about bank runs by economist Frances Coppola that ended with her saying:
"Self-correction mechanisms that rely on financial incentives do not work when panicking humans are stampeding for the exit."
Kwon said:
"I don't debate the poor on Twitter, and sorry I don't have any change on me for her at the moment."
The collapse was felt far outside crypto, with Treasury Secretary Janet Yellen and finance ministers around the world jumping on it as both a reason to rein in and regulate stablecoins, and to push harder for central bank digital currencies. Nearly all of the stablecoin laws under consideration mandate holding fiat currencies in reserve, or very liquid investments such as U.S treasuries.
The story of Terraform Labs is over, but the story of what happened to UST and LUNA may only be beginning. In the wake of investigations into the collapse of FTX and Alameda Research, the Justice Department is now reportedly investigating if Bankman-Fried's trading firm was behind a trading strategy that sought to drive down the price of LUNA — which it had shorted — and lost control of. This may have sparked the panic that killed UST, causing the industry-wide collapse that eventually bankrupted FTX.
Babel Finance
On May 25, Babel Finance raised $80 million at a $2 billion valuation. On June 17, the Hong Kong-based crypto lender halted withdrawals.
What happened? It's proprietary trading desk happened. According to reports, it lost more than $280 million — 8,000 BTC and 56,000 ETH — in the week when Bitcoin dropped from $30,000 to $20,000 because of "unhedged positions" in its proprietary trading accounts that "chalked up significant losses, directly leading to forced liquidation of multiple trading accounts," according to a fundraising deck later seen by The Block.
That team, it added, "operates several trading accounts not controlled or monitored by the trading department; no trading mandate or risk controls were implemented for these accounts; no [profit and loss] was reported" and its orders "were not recorded in the system."
They did, Bloomberg reported, use customer funds. The company is restructuring, reportedly seeking to turn debt into convertible bonds and sell more of those bonds, turning its largest creditors into shareholders.
Three Arrows Capital
Three Arrows Capital co-founders Zhu Su and Kyle Davies were — as Enron liked to say — the smartest guys in the room. They were such geniuses that investors kept shoveling money at them without asking how they were investing it, and crypto leaders were turning over nine-figure bucketloads of crypto without asking for collateral.
Their Singapore-based fund had $18 billion in assets under management at its height — but it turned out 3AC, as it was known, was making its outsize returns by making very big bets on DeFi projects including the LUNA token that was used for the arbitrage system that maintained UST's dollar peg.
Caught off guard when LUNA lost 99% of its value in a few days, Zhu said the pair had not realized it would put such "significant pressure on all our illiquid positions."
Other bad bets included staked Ether — stETH — a proxy token for Ether locked into staking the Ethereum 2.0 blockchain before it went live that depegged, sending its value down below the ETH it represented.
And, it was heavily invested in the Grayscale Bitcoin Trust, a sort of proxy ETF that bought Bitcoin and sold shares in the company. When actual ETFs began opening around the world, the share price went from a 20% premium to the value of its holdings to a 20% deficit over the course of 2021.
But like Babel Finance during that fateful week in early June — Bitcoin dropping from $30,000 to $20,000 "ended up being kind of the nail in the coffin," Zhu said.
A court of the British Virgin Islands ordered the firm liquidated on June 27 after it defaulted on a $650 million-plus loan from Voyager Digital (which was the next domino to fall.)
But not just for them. Other than Celsius, almost every crypto lender than halted withdrawals or went bankrupt was badly hurt by 3AC's failure — meaning they didn't just have crypto investors at the invest-in-a-hedge-fund level angry at them, they had millions of people who'd put a little money into crypto earn schemes being told the pair were behind their frozen funds.
Explaining why they've been keeping a low profile, Zhu said:
"For Kyle and I, there's so many crazy people in crypto that kind of made death threats or all this kind of noise. We feel that it's just the interest for everyone if we can be physically secured and keep a low profile."
Which has been presented as them being on the run, or at least in places where making them cooperate is difficult.
A months-long feud with the liquidators of 3AC hasn't helped. The liquidators have accused Zhu and Davies of refusing to cooperate, warning that many of 3AC's remaining assets could be "dissipated" as they are "are comprised of cash and digital assets, such as cryptocurrencies and non-fungible tokens, that are readily transferable" — which isn't quite saying they could be stolen.
Meanwhile the pair have in turn accused the liquidators of "baiting" them and misrepresenting their cooperation — gaining very little sympathy on Crypto Twitter, where they have been accused of "playing the victim card in the court of public opinion."
Which is fairly hard to do when you're being accused of making it hard for liquidators to sell off your $30 million Dogecoin-themed superyacht "Much Wow" to pay off people who've lost their life savings. Or when your $35 million NFT collection is now worth $850,000.
Voyager Digital
The first of the crypto lending firms to declare bankruptcy following the collapse of LUNA and subsequent fall of the 3AC crypto hedge fund, Voyager Digital was caught out by two things: the exceptionally high interest rates it offered clients when banks were offering fractions of a percent, and its own bad lending practices.
Specifically, it loaned $350 million in USDC and 15,250 BTC to 3AC — totalling more than $650 million — without collateral. Why? Well it was offering customers of its Voyager Earn program up to 10% yield for staking any of several dozen tokens. That requires quite a hefty return on loaning out those funds at a time when banks were offering well under 1%.
This is what 3AC offered, until it didn't when the staggeringly risky DeFi investments it was betting on went sour. With a big hole and $1.3 billion in assets remaining, Voyager CEO Stephen Ehrlich first cut the daily withdrawal limit to $10,000 from $25,000 on June 23, before halting all activity on July 1. Four days later, he filed for Chapter 11 bankruptcy — saying the $110 million in cash and crypto on hand would give it the liquidity to reorganize.
Voyager made several missteps. A plan to repay creditors with its own tokens and shares in a reorganized firm fell flat. It was also criticized by the Federal Deposit Insurance Corporation (FDIC) for making "false and misleading statements" that implied customers' deposits were insured when only Voyager's own bank account was. Reorganization proved impossible.
Damage was widespread, with 97% of Voyager's 3.5 million customers having invested less than $10,000. Others were hurt worse. One woman, Magnolia, testified at the bankruptcy hearing that $1 million she'd saved over 24 years, including $350,000 earmarked for her children's college, was stuck on the platform.
Ehrlich also got into a feud with Sam Bankman-Fried, whose FTX exchange and Alameda Research trading firm offered to "save" it with a $500 million line of credit.
He derided this offer as "a low-ball bid dressed up as a white knight rescue" — and said Voyager's own plan would "deliver far more value," while SBF's offer "transfers significant value to AlamedaFTX, and completely eliminates the value of assets that are of no interest to AlamedaFTX."
Insult was added to injury when the $1.4 billion winning bid that Bankman-Fried's FTX US later made for Voyager's assets collapsed with that exchange's own bankruptcy last month.
Alameda, it turned out, owed Voyager $377 million that its customers will likely never see.
CoinFLEX
Futures exchange CoinFLEX flat out halted withdrawals on June 23 — citing both "extreme market conditions" and what it said was "uncertainty around a certain counterparty" that it later identified as Roger Ver, a very early Bitcoin investor nicknamed "Bitcoin Jesus" who is also the driving force behind Bitcoin Cash.
After Ver said rumors about him being behind the suspension were untrue, CEO Mark Lamb went on Twitter to say:
"Roger Ver owes CoinFLEX $47 Million USDC. We have a written contract with him obligating him to personally guarantee any negative equity on his CoinFLEX account and top up margin regularly. He has been in default of this agreement and we have served a notice of default."
Lamb also called "blatantly false" Ver's comment — which cited only a "counterparty" not CoinFLEX — that it owed him any debts.
In late September, CoinFLEX announced a reorganization plan that would give creditors 65% of the company, while original investors, including the founders, would forfeit that equity.
Celsius Network
Back in June, Celsius Network spooked its users by declaring it was suspending withdrawals in a shock announcement. Hours earlier, the company's CEO had denied there were issues — lashing out at what he called "FUD and misinformation."
"Extreme market conditions" were blamed for the drastic move — leaving a whopping 1.7 million users frozen out of their savings. About 300,000 of them had a balance of over $100.
At one point, the embattled lender was offering annual percentage yields of 18.63% with interest paid weekly — and in hindsight, such returns were simply too good to be true.
The decision to freeze withdrawals caused customers to lose confidence in Celsius, not least because updates on what was going on were very hard to come by. And even if accounts were reopened, the business would have been a shell of its former self as customers rushed to be reunited with their funds.
All of this meant it was little surprise when Celsius filed for bankruptcy one month later in an attempt to "stabilize its business" and undergo restructuring.
Painful layoffs soon followed as the doomed crypto lender battled to stay afloat, with court papers suggesting that the company had a $1.2 billion black hole in its finances. Aggrieved customers were left incensed when Celsius unveiled plans to rehire its chief financial officer and pay him $92,000 a month — rubbing salt into the wound while they were out of pocket. A U-turn soon followed.
Former employees have since accused Celsius Network of "sloppiness and mismanagement" — with ex-director of compliance Timothy Cradle telling CoinDesk that executives had actively manipulated the value of CEL, the company's native token.
The dominos continued to fall — and four months after the curtain closed on withdrawals, Alex Mashinsky announced he was stepping down as CEO. He admitted that his presence "has become an increasing distraction." The Financial Times later claimed Mashinsky had withdrawn $10 million from the platform in the weeks before customers were locked out of their accounts.
At one point, reports suggested that Sam Bankman-Fried was planning to swoop in and bid for the stricken company's assets — a deal that thankfully never came to pass.
A 14,500-page document later emerged that revealed the transactions made by customers in granular detail — with a website popping up that detailed exactly how much each Celsius user is owed. The biggest loser? A man called Jacob Benjamin Fite, to the tune of $40.4 million. Ouch.
There are glimmers of hope for Celsius customers. In December, a bankruptcy judge said a small group of users could receive their deposits back. Unfortunately, this $50 million payout is a drop in the bucket considering Celsius customers are owed billions.
They now face a long and uncertain path as they battle to be reunited with their funds, and there are no guarantees that they'll receive the full amount they're owed.
Vauld
Singapore-based crypto lender trading platform Vauld died on the Fourth of July. Well, technically that's when it halted trading. The bankruptcy didn't come until later that month, but the problems began on June 12, when a run on deposits began that saw almost $200 million withdrawn.
Like many crypto lenders — and the FTX exchange for that matter — the end came after days and weeks of CEO and co-founder Darshan Bathija saying that it would operate normally. The company reportedly owes its mainly retail clients about $360 million, and about another $35 million to a secured creditor.
On June 16, he said the Peter Thiel-backed company said it had "always maintained a balanced and conservative approach to liquidity management."
Over the previous few days, he added at the time:
"All withdrawals were processed as usual and this will continue to be the case in the future… and we are laser-focused on putting our heads down and building for that future. We remain committed to enabling you to build wealth."
Vauld's future remains uncertain, as it has spent most of the past five months in due diligence discussions with Nexo, another crypto lender in talks to acquire it in hopes that Vauld's 800,000 customers will help it get a foothold in Asia.
Which it needs, as Nexo announced in early December that it plans to withdraw from the U.S. altogether, claiming regulators have started infighting, creating "an impossible environment to operate."
Nuri
The German crypto bank is one of the few firms that didn't halt withdrawals before shutting its doors. It filed for insolvency on Aug. 9, citing falling crypto prices and the insolvency of Celsius, as well as other macroeconomic headwinds.
Calling it "necessary to ensure the safest path forward for all our customers," the company said:
"You have guaranteed access and will be able to deposit and withdraw all funds freely at any time. For the time being, nothing will change and Nuri's app, product and services will continue to run."
There was a Dec. 18 deadline to withdraw funds.
Hodlnaut
On Aug. 8, crypto lender Hodlnaut joined the list of firms halting withdrawals.
Eight days later, it went into bankruptcy due to a $190 million loss sustained in the LUNA/UST crash, falling crypto prices, rising withdrawals and "issues relating to certain users who have deposited substantial amounts of cryptocurrency with Hodlnaut."
With liabilities of $281 million and assets of just $88 million at the time, Hodlnaut proposed a "haircut" that would give customers about 25 cents on the dollar, suggesting a liquidation would take far longer and likely result in a lower return.
However, in late November, word emerged that the company is facing a police probe for misrepresenting its exposure to UST.
Compute North
The crypto miner filed for Chapter 11 bankruptcy on Sept. 23, citing both the effects of the crypto winter and the rising cost of power in Texas.
The company, which has mining facilities and hardware, a hosting service and a BTC mining pool, owes about $500 million to some 200 creditors.
Major partners like Compass Mining said that they had been told the reorganization would not affect services.
Freeway
You'll be shocked to hear that Freeway, a crypto staking platform that offered investors returns of up to 43% on its "Supercharger" product, halted withdrawals on Oct. 23.
The problem, it tweeted a few days later, was that "one of Freeway's trading strategies appears to have failed and caused a substantial loss to be incurred" due to the "unprecedented" rise in the U.S. dollar and market volatility.
Its strategy, it said, was to bring in new management for its remaining funds while running four simultaneous recovery plans, about which it gave very few details.
FTX Group
When Sam Bankman-Fried's crypto empire collapsed last month, it did so in record time.
Bahamas-based FTX was overwhelmed by a bank run — putting the world's second-largest exchange under strain. That was just four days after a CoinDesk scoop revealed that Alameda Research — FTX's sister trading firm — was holding billions of dollars of FTT on its balance sheet. FTT is FTX's native token, and this raised serious questions about the financial health of both businesses. By Nov. 11, FTX Group had filed for bankruptcy.
With the weakness of its balance sheets revealed the company, recently valued at $32 billion, suffered a run. Bankman-Fried's net worth dropped from $20 billion to an estimated $100,000 (although his ability to hire the New York criminal defense lawyer who represented sex trafficker Ghislaine Maxwell does suggest he has some access to funds.)
The bad news just kept coming: FTX had loaned Alameda $10 billion in customers funds — that it had no right to use — to cover earlier losses, but then lost most of that, leaving one million customers looking at an $8 billion hole in the company's books.
The restructuring CEO brought on to take FTX, its smaller American sister exchange FTX US, Alameda, and what turned out to be more than 100 other companies through bankruptcy said "never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred" — pretty impressive from the guy who took Enron through bankruptcy.
Allegations of records set to auto-delete and coding that allowed the transfer of funds from FTX to Alameda without alerting the firm's legal and compliance teams followed, as did reports that Alameda CEO and SBF's sometimes girlfriend Caroline Ellison told staff she, Bankman-Fried and others knew they were misusing customer funds.
Ellison and Bankman-Fried were among 10 top executives who lived and worked together in a luxury resort penthouse in the Bahamas. Ray's lawyers told a court top executives may be "compromised."
Which hasn't stopped Bankman-Fried from going on an "I'm an idiot, not a crook" press tour, making progressively broader claims about how little he knew about what was happening at his company when asked if he is the new Bernie Madoff. As well as about nine-figure personal loans he took out, the purchase of luxury property in The Bahamas, and how he didn't notice an $8 billion deficit.
SBF was the golden boy of crypto, wielding an unwieldy mop of hair and eternal shorts as he drove FTX to market dominance in just three years. The 30-year-old became the most recognizable face of the industry in record time, lobbying Congress as he doled out tens of millions in political donations and hobnobbing with star athletes and actors like quarterback Tom Brady — whom he got to use a flamethrower in one commercial — and NBA star Steph Curry.
A high-profile and highly prescient Super Bowl commercial featured Larry Davis waxing skeptical about crypto investments. He also poured hundreds of millions into naming rights and sponsorships like the NBA Miami Heat's arena and e-sports teams.
Now he's reviled: Bitcoin maximalist Michael Saylor called him "diabolical" while Galaxy Digital crypto asset management firm CEO Mike Novogratz said he belongs in jail — a sentiment Sen. Sherrod Brown, chair of the Senate Banking Committee, made clear he agrees with.
Firms like BlockFi that he rescued while preening himself as crypto's savior after 3AC caused a wave of bankruptcies, and others that he borrowed from will be dragged under, and crypto's credibility has taken a huge hit on both Main Street and Capitol Hill.
SBF is now facing civil enforcement action from the SEC and CFTC, with the Southern District of New York filing eight criminal charges. He was arrested in The Bahamas hours before he was due to testify to the House Financial Services Committee. Bankman-Fried has been denied bail and is now behind bars as efforts get underway to extradite him to the U.S. The fallen entrepreneur has suggested he'll fight any attempt to send him stateside.
SALT
Crypto lender SALT blamed its own withdrawal halt, announced on Nov. 15, on FTX.
"Until we are able to determine the extent of this impact with specific details that we feel confident are factually accurate, we have paused deposits and withdrawals on the SALT platform effective immediately," CEO Shawn Owen told customers.
He did not make clear exactly how FTX impacted SALT.
BlockFi
One of the first victims of 3AC, BlockFi's 2022 has to be among the worst even in this list of companies we've lost.
Back in February, the Securities and Exchange Commission (SEC) used it as the guinea pig in its assault on crypto lending, which the agency labeled a form of unregistered securities sale. Along with about three dozen state regulators, it extracted a $100 million fine.
In June, it was on the ropes due to the collapse of 3AC and the atmosphere of panic, and halted withdrawals. Then Sam Bankman-Fried rode to the rescue, offering it a $250 million credit line that was eventually expanded to $400 million, and an option for FTX US to acquire BlockFi.
BlockFi's CEO Zac Prince tweeted on July 1:
"So, what events led up to this deal with FTX US? Crypto market volatility, particularly market events related to Celsius and 3AC, had a negative impact on BlockFi. The Celsius news on June 12 started an uptick in client withdrawals from BlockFi's platform despite us having no exposure to them. In the same week, 3AC news spread further fear in the market."
While BlockFi only lost $80 million to 3AC — far less than many other crypto lenders, Prince noted — it had to halt withdrawals. As for the FTX deal, he explained, it was the only offer of capital that wouldn't give existing clients a haircut or put them behind other creditors.
He added, in a comment that didn't age well:
"Ultimately, we found a great partner in @FTX_US, who shares our commitment to clients. This represents the best path forward for all @BlockFi stakeholders and the crypto ecosystem as a whole… there is now even more upside in the future."
Right up until FTX imploded. Now, BlockFi owes FTX $275 million. But, it has $355 million frozen on the bankrupt exchange. Worse, bankrupt Alameda Research now owes BlockFi $671 million. It has sued for the collateral, Bankman-Fried's shares of stock and crypto trading platform Robinhood.
That's more than $1 billion that BlockFi and its 100,000 creditors are unlikely to see. On Nov. 28, it finally did what it had avoided for six months: filed for bankruptcy. It will lay off almost 200 employees, about two-thirds of its staff.
Its biggest creditor is Ankura Trust Company, which is owed $729 million on behalf of one or more other creditors. And Peter Thiel, a Vauld investor, also owns 19% of BlockFi, so he'll see a steep hit.
Adding insult to serious injury: the SEC is still owed $30 million, and will likely be ahead of regular creditors in line to get it.
