David Jia Follow Jun 24
· 5 min read
Within the cryptocurrency sector over the past two months, three of the most disastrous project failures have occurred.It all started with the catastrophe with the Terra UST in May, which sent the markets into a downward spiral.And in the time since then, two additional companies, namely the cryptocurrency exchange Celsius and the venture capital firm Three Arrow Capital (3AC), have caved in to the pressures of the market and are inching closer and closer to insolvency.
What began as a steady decline towards the end of 2021 has rapidly evolved into one of the most severe crypto winters the market has ever experienced.Bitcoin is currently trading at around $20,000, which is less than one-third of its all-time high in November last year.Similar to Bitcoin, Ethereum fell below the $1,000 threshold last week.Let’s take a closer look to determine what went wrong with these doomed enterprises and whether they can be saved.
Genesis On 7 May 2022, Terraform Labs, the company behind the Terra ecosystem, withdrew 150 million UST from the decentralized exchange known as 3pool.This was done by Terraform Labs to migrate their cash to a different protocol.Nonetheless, the high-volume extraction deprived 3pool of liquidity and rendered it susceptible to exploitation.
According to Chainalysis , a trader recognized the opportunity and swapped 85 million UST for USD Coins (USDC) within thirteen minutes of Terraform’s withdrawal.
Then, a second trader did the same with 100 million USD in 25 million USD slots.This created a large UST supply on the cryptocurrency market.Despite Terraform Labs’ best efforts to counteract these withdrawals, the damage was already done, and the UST lost its 1:1 peg with the US Dollar.
This resulted in considerable panic among investors in Terra.Several investors began selling their UST holdings in conjunction with the Anchor Protocol, a decentralized finance (DeFi) project administered by Terraform Labs.Moreover, a reserve of Terra’s native cryptocurrency, LUNA, was used to preserve the UST-USD peg.Therefore, when UST began to decline, LUNA fell along with it.The price of LUNA dropped from $80 on May 1 to $0.0001 by the end of the month.
Since then, Kwon Do-Hyung, co-founder of Terra, has made various offers to revive the failing enterprise.One of the options was a hard fork that would generate an entirely new version of the blockchain with identically-named coins.
Terra would become Terra Classic and Luna would become Luna Classic (LUNAC).While the new coin has gained some popularity, it is nowhere near LUNA’s all-time high of $119.02 in April.
Aftershock Three Arrows Capital has also felt the ripple effects of the Terra catastrophe.
On 17 June, 3AC admitted to the Wall Street Journal (WSJ) that the LUNA disaster had resulted in significant losses for the company.Kyle Davies, the co-founder of 3AC, told the WSJ that the company had $200 million in LUNA tokens dating back to the LFG’s $1 billion fundraising event in February.After the collapse, the $200 million evaporated.“The Terra-Luna issue took us completely by surprise,” Davies told the WSJ.
Reportedly, 3AC owes $6 million to BitMEX , a cryptocurrency exchange.Three exchanges, FTX, BitMEX, and Deribit, liquidated all of 3AC’s positions within the past week after the hedge fund was unable to fulfill margin calls.3AC is contemplating the sale of assets to obtain revenue and repay debts while searching for companies that may be able to revive it.
The Celsius Network , one of the world’s largest crypto lenders, said on June 13 that it was stopping all withdrawals, swaps, and transfers .
In May of 2022, the project was managing $12 billion worth of assets for 1.7 million users throughout the globe.
Investors are still awaiting the protocol’s revelation of when or how their cash will be redeemable.Celsius lost $22 million due to a BadgerDAO compromise and 38,000 ETH after Stakehound (an ETH staking service) lost wallet private keys.
Extreme market conditions were mentioned by Celsius Network as the reason for going cold.“We understand that this news is difficult, but we believe that our decision to pause withdrawals, Swap, and transfers between accounts is the most responsible action we can take to protect our community.We are working with a singular focus: to protect and preserve assets to meet our obligations to customers.Our ultimate objective is stabilizing liquidity and restoring withdrawals, Swap, and transfers between accounts as quickly as possible.There is a lot of work ahead as we consider various options, this process will take time, and there may be delays,” stated the Celcius official blog .
In addition to seeking legal assistance, the protocol is examining methods to emerge unscathed from the volatile scenario.Restructuring the finances and infusions of capital from investors are the possibilities being considered.
Upon imposing a freeze on withdrawals, swaps, and transfers, the Celsius Network un-staked wrapped Bitcoin (wBTC) worth $247 million from the DeFi protocol Aave and transferred it to the crypto market FTX.Additionally, Celsius diverted Ether (ETH) worth $74.5 million to FTX .
A cold and dry winter for DeFi In the last week, DeFi’s total value locked experienced another outflow, falling to $55 billion, according to analytical data.According to data from Cointelegraph Markets Pro and TradingView, the top 100 DeFi coins by market capitalization experienced wild price action last week, with bears dominating market trends.
The bulk of DeFi coins in the top 100 by market capitalization experienced double-digit losses.Theta network demonstrated the most resistive decline over the last week, falling by 12 percent, followed by Basic Attention Token (BAT), which plummeted by 14 percent.
Over the past week, the remaining top-100 DeFi tokens dropped by more than 20%, with some experiencing losses as high as 40%..
