The global economy has been heavily impacted by the ongoing pandemic, and this has undoubtedly affected the crypto industry as well. In this article, we will take a look at some of the biggest disappointments in the crypto space in 2022, as the industry looks toward a more positive future.
Axie Infinity's Ronin Bridge Hacked for $625 Million
In March of this year, the Ronin blockchain network, which runs the popular non-fungible token (NFT) cryptocurrency game Axie Infinity, was hacked for a total of $625 million. The hacker was able to take 173,600 Ether and 25.5 million USD Coin from the Ronin bridge in two separate transactions. The Lazarus Group was responsible for the attack, and they were able to gain access to five of the nine private keys for the Ronin Network's cross-chain bridge. With this vote, they authorized the two withdrawals totaling $25.5 million in USDC and 173,600 ETH.
According to the Ronin group, Axie Infinity's issues began in November 2021, when its user base had grown to an unsustainable size. As a result, the company's safety measures had to be relaxed to meet demand. However, after the initial phase of rapid growth was complete, the firm reduced its safety procedures. The main problem was the lack of a sufficiently decentralized network created by game developer Sky Mavis. The hacker was able to gain access to the private keys of five of Sky Mavis' Ronin Chain's nine validator nodes, which allowed them to compromise the network. With control over five nodes, the hackers essentially had control over more than half of the network and were able to accept or deny any transactions they chose. They were then able to obtain ETH and USDC by falsifying withdrawals.
The attack took place on March 23, but it was not discovered until March 29, when a user reported being unable to withdraw 5,000 ETH from the Ronin bridge ATM. In the aftermath of the attack, Axie Infinity developers raised $150 million to reimburse affected users.
TerraUSD/LUNA Collapse Causes $60 Billion Loss for Investors
On May 7, over $2 billion in TerraUSD (UST) was unstacked (removed from the anchor Protocol), leading to a rapid liquidation of hundreds of millions of dollars. It is not clear whether this was a deliberate attack on the Terra blockchain or a response to rising interest rates. The outflow of funds caused the price of UST to fall from $1 to $0.91, leading to traders exchanging $0.90 in UST for $1 in LUNA.
The large movement of UST caused the stablecoin to debug, and the availability of LUNA increased as more people sold their UST during the panic. Following the drop, cryptocurrency exchanges began to suspend trading pairs such as LUNA and UST. In the aftermath of the initial incident in May, Do Kwon, the CEO of Terraform Labs, released a rehabilitation plan for LUNA, and it seemed as though things were improving. However, the value of the currency eventually fell, and it was eventually abandoned in favor of a new currency called LUNA 2.0.
In total, investors lost a combined $60 billion due to the panic selling that accompanied the decline of TerraUSD Classic (USTC) and Luna Classic (LUNC), a related token. On September 14, a South Korean court issued an arrest warrant for Do Kwon, four months after the collapse of Terraform Labs' LUNA and UST tokens. Do Kwon and five others were detained for allegedly violating local market regulations.
Three Arrows Capital's Involvement in Struggling Cryptocurrency Projects Leads to Collapse
When Terra collapsed, the cryptocurrency hedge fund Three Arrows Capital (3AC) also suffered greatly, as it had invested heavily in many struggling cryptocurrency projects, including Axie Infinity, which lost $625 million to a North Korean hack earlier in the year. 3AC had a peak market valuation of more than $560 million, but it faced significant losses due to its involvement in these troubled projects.
In June, 3AC announced that it was shutting down, citing the "unforeseen market conditions" and "many legacy positions that have detracted from the overall performance." The company also stated that it had faced "unprecedented market conditions," and that it was "not in a position to continue operations as a fund." This came as a surprise to many, as 3AC had been one of the most well-known and successful cryptocurrency hedge funds.
Tether's Controversial Relationship with Bitfinex Results in NYAG Lawsuit
Tether, a stablecoin that is meant to be pegged to the value of the US dollar, has long been controversial due to its close relationship with cryptocurrency exchange Bitfinex. In April, the New York Attorney General's office (NYAG) filed a lawsuit against Tether and Bitfinex, alleging that they had engaged in a cover-up to hide the loss of $850 million in client and corporate funds.
According to the NYAG, Tether and Bitfinex had made false statements about the reserves backing Tether and had used Tether's reserves to cover up the massive loss of funds at Bitfinex. The NYAG also alleged that Tether and Bitfinex had misled investors by making it appear as though Tether was fully backed by US dollars, when in fact it was not.
The lawsuit caused a significant drop in the value of Tether, and it sparked a wider debate about the stability and transparency of stablecoins. Tether and Bitfinex have denied the allegations, and the case is ongoing.
Ethereum Classic's 51% Attack Results in $5.6 Million Loss
In August, the cryptocurrency Ethereum Classic (ETC) suffered a 51% attack, which resulted in a loss of $5.6 million. In a 51% attack, a group of miners gains control of more than half of a cryptocurrency's mining power, allowing them to alter the blockchain and reverse transactions.
In the case of ETC, the attackers were able to double-spend or spend the same coins twice, leading to the loss of funds. The attack caused a significant drop in the value of ETC, and it raised concerns about the security of smaller cryptocurrencies.
Cryptocurrency Exchange Cryptopia Goes Bankrupt and Loses $23 Million
Cryptocurrency exchange Cryptopia, which was based in New Zealand, went bankrupt in May after suffering a hack in January that resulted in a loss of $23 million. The hack was discovered on January 14, and the exchange was forced to close down as a result.
According to the company, the hack was "significant and sophisticated," and it resulted in the loss of a large number of cryptocurrencies, including Ether and Litecoin. The company's assets were frozen by the New Zealand High Court, and a liquidator was appointed to oversee the bankruptcy process.
The hack and subsequent bankruptcy of Cryptopia was a major disappointment for the crypto community, as the exchange had been a popular choice for many traders. The incident also raised concerns about the security of cryptocurrency exchanges, and it served as a reminder of the risks involved in trading and storing digital assets.
Conclusion
2022 has been a difficult year for the cryptocurrency market, with many major disappointments and setbacks. From the hack of Axie Infinity's Ronin bridge to the collapse of TerraUSD and the bankruptcy of Cryptopia, the industry has faced many challenges. However, as the year comes to a close, the crypto community is looking toward the future with hope and optimism, as the industry looks to rebuild and move forward.
