2022 is about to officially come to an end. Looking back at the encryption market in the past year, various “magical realism dramas” are dazzling, from major hacker attacks to the collapse of large trading platforms, investment institutions and market makers, the scope and amount of influence are extremely shocking , These turmoil has also caused the total market value of the encryption field to evaporate by more than 2 trillion US dollars compared with the beginning of the year, and the liquidity movement has come to an end.
Although the encryption market will turn from bull to bear in 2022, and frequent thunderstorms and hacking incidents have caused the outside world to have PTSD on the encryption market, the historic upgrade of the merger of Ethereum, encryption donations and payments under the Russia-Ukraine incident, Move to Earn and ape Phenomenon-level products such as Universe Otherside and breakthroughs in technologies and applications such as the entry of traditional Web2 brands into NFT have also given confidence and hope to the encryption market in the cold winter.
In this article, PANews will take stock of the major moments of the encryption industry in 2022. These rise and fall events will become footnotes that cannot be ignored in the history of encryption.
World’s First Crypto War: Russia-Ukraine Conflict
In February of this year, when the Russian-Ukrainian war broke out, cryptocurrency became one of the best-performing assets due to donations and payment methods, which also made this war known as “the world’s first cryptocurrency war.” On the one hand, the time and transaction costs of the Ukrainian government’s payment and the high votes passed the legal status of cryptocurrencies such as Bitcoin in the country, and used cryptocurrencies such as Bitcoin and Ethereum as financing methods for military aid, which greatly reduced the cost of donations. Time and transaction costs; on the other hand, due to the economic and high-tech sanctions of many countries, cryptocurrency has become a port of escape for governments and individuals to avoid sanctions.
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However, while Crypto is being pushed to the center of the stage of the great power game, as this “financial impeachment” ferments in the encryption field, the different positions of the encryption community have once again sparked controversy over the core concept of “decentralization”, especially those Sanctioning Russia’s crypto agencies over regulatory requirements seems to defeat the purpose of the crypto space.
Related reading: Behind the Russia-Uzbekistan Conflict, Encrypted Hedging Narratives and Decentralized Thinking
Creating a New Paradigm for GameFi: STEPN Brings M2E Mode to Fire
STEPN claims to be the world’s first Move To Earn (earn while moving) Web3 game. It has received investment from Sequoia Capital India and Binance. Different from GameFi 1.0, GameFi 2.0, represented by STEPN, has gained popularity by improving the offline scalability and social attributes of the virtual space, and connecting the virtual and physical spaces. Especially as the new crown epidemic continues to rage around the world, people The life, work, entertainment and other activities of the world have begun to migrate from the reality to the virtual context. In addition to STEPN, well-known sports brands including Nike and Adidas are also testing the waters of NFT and Metaverse.
Simply put, STEPN is an app that rewards users for moving outdoors. To earn Tokens, users need to walk, run or jog outdoors after purchasing digital sneakers in the NFT market. Different from Axie Infinity, the previous leading game project, Stepn has optimized the economic model, including adding token consumption scenarios and krypton gold scenarios, strict anti-cheating mechanism and interesting invitation code creation mechanism, etc., to avoid facing new users of the former Insufficiency and hyperinflation and other problems, which also made its active users reach millions at one time, and harvested many outside users, such as Adidas vice president Scott Dunlap, well-known investor Zhu Xiaohu, etc. Regarding the popularity of STEPN, its co-founder Yawn Rong once said on Twitter that STEPN’s market design draws on the pathology and transmission characteristics of the virus, taking into account how the virus grows explosively and how to suppress itself after reaching its peak.
However, STEPN’s choice to remove mainland users and modify the rules at will has led to constant negative public opinion, resulting in a continuous decline in its popularity. However, the game’s timely grasp of the trend and mechanism innovation are worth learning from other products.
Why can STEPN bring up the popularity of Web3 products? We analyzed his economic model and product design
The largest crypto hack in history: $620 million stolen from Ronin
In March of this year, Axie Infinity side chain Ronin officially discovered that Sky Mavis’s Ronin validator node and Axie DAO validator node were stolen, resulting in two transactions of 173,600 Ethereum and 25.5 million USDC flowing out of the bridge. $625 million, attackers used hacked private keys to fake withdrawals. At present, US law enforcement agencies have recovered $30 million in stolen funds from Ronin Network, and have also listed the hacker address on the sanctions list.
Ronin only found out that the validator node was compromised 6 days after the incident, and some of the stolen funds had been transferred. In fact, the Ronin sidechain is protected by 9 verifier nodes, and to identify a Deposit event or a Withdraw event, 5 of these 9 verifiers are required to sign. The hacker successfully controlled 5 of the nodes (including 4 verifier nodes run by Sky Mavis itself and 1 verifier node run by Axie DAO), and the private keys of these 5 verifiers were stolen.
According to reports from the Sky Mavis blog and The Block, the theft of Ronin points to a social engineering attack. Employees of a bogus company reached out to employees of Axie Infinity and Ronin developer Sky Mavis via LinkedIn and encouraged them to apply for jobs. An employee of Sky Mavis received the “Offer” after going through many interviews. After downloading the fake “Offer” letter, the hacker software infiltrated Ronin’s system and took over 4 of the 9 validators on the Ronin network. The hackers then took control of Axie DAO through Sky Mavis, which had allowed Sky Mavis to sign various transactions on its behalf. Once the attacker gained access to Sky Mavis, they could obtain signatures from Axie DAO validators. In order to compensate affected users, Sky Mavis, the development company of Axie Infinity, completed a $150 million financing led by Binance.
In addition to Ronin, since the beginning of this year, there have been continuous cases of theft in the encryption field, with the amount exceeding US$3 billion, and the cross-chain bridge is the hardest hit area for security. Previously, PANews also took stock of the more significant attacks on cross-chain bridges in the past, including Poly Network’s $610 million, BNB Chain’s over $500 million, Wormhole’s $320 million, Horizon’s nearly $100 million, and Nomad’s $190 million and $80 million for QBridge, etc.
The details of the $620 million stolen from Ronin: 6 days after the incident, the user reported that the private keys of 5 authenticators were stolen
Offer worth $540 million: Ronin was attacked because the engineer opened an admission letter from a fake company
The crypto market staged a big short: UST was hunted by capital
As one of the best-performing assets in the last bull market cycle, Terra was once the L1 public chain second only to Ethereum. Terra’s native algorithm stablecoin UST is credited by Terra’s ecological non-profit organization Luna Foundation Guard (LFG) reserve Bitcoin and other cryptocurrencies. However, in May of this year, due to capital hunting and debt crisis, UST took a dramatic turn. The serious unanchoring incident caused tens of billions of assets to be instantly wiped out.
On May 9, as some whale accounts began to withdraw a large number of positions from Anchor, the lending application on Terra, and dumped their UST assets through Curve (UST’s largest on-chain DEX), UST decoupled, causing Anchor depositors to The panic started withdrawing and selling their UST and dumping the exchanged LUNA in large quantities. The flight of these depositors triggered a run, which accelerated UST’s death spiral. LUNA, on the other hand, had to issue a large number of additional tokens due to the large demand for redemption of UST, but it still could not “stop the bleeding”, so that it fell into the vortex of hyperinflation.
This “Crypto Lehman incident” caused heavy losses to Binance Labs, Jump, 3AC, Hashed, and Delphi, and the domino effect of this thunderstorm is still spreading.
Reviewing Terra’s defeat and current situation, what opportunities did UST and LUNA miss to save themselves?
Dialogue with Shenyu, Mindao and other industry veterans: The enlightenment and warning of Terra’s crash
Dominoes play: Ten billion giant 3AC collapses
As one of the largest encryption hedge funds, 3AC was “hunted” beyond everyone’s expectations. In fact, behind 3AC’s defeat is not unrelated to the high leverage established by itself due to long-term mortgage lending/unsecured credit lending. However, the crash of Terra in May this year and the decoupling of the algorithmic stablecoin UST from the U.S. dollar caught 3AC off guard. According to Terra researcher FatMan, 3AC had borrowed from multiple funds and institutions, and without the lender’s knowledge, used the Terra Ecological Anchor Protocol to earn 20% interest in cash. Before LUNA collapsed, 3AC had at least hundreds of millions of UST . At the same time, as UST de-anchored, the derivative token stETH supported by ETH 1:1 also decoupled, which made 3AC, which used most of its funds for stETH, sell its position at a substantial discount rate. In addition, GBTC’s negative premium is also one of the main factors that crush 3AC. 3AC converted the borrowed Bitcoin into billions of dollars worth of GBTC for arbitrage. However, due to the GBTC’s inability to redeem the mechanism, 3AC could not withdraw the funds to supplement the mortgage rate of the liquidation amount, and was forced to liquidate. The SEC Form 13F document disclosed by Grayscale shows that the GBTC holdings of only two institutions, BlockFi and Three Arrows Capital, once reached 11% (institutional holdings accounted for no more than 20% of the total circulation).
In the end, 3AC formally filed a bankruptcy protection application with the Bankruptcy Court of the Southern District of New York in July due to its inability to repay its debts, announcing that it had entered bankruptcy proceedings. According to court documents, Three Arrows Capital owes $3.5 billion to 27 encryption companies. Creditors include Genesis, Voyager Digital, Celsius, FalconX, DRB Panama, and CoinList Services. Among them, Genesis is 3AC’s largest creditor, lending 2.3 billion US dollars to it, and the agency is also affected by this and is on the verge of bankruptcy.
It is worth mentioning that Su Zhu, the founder of 3AC Capital, mentioned in an interview with Bloomberg that Genesis repaid billions of dollars in loans in one go in the early spring of 2020, which in turn caused panic among lending institutions (because they promised fixed income for depositors), and ask us to borrow money from them again. Think about us and Alameda Research, as the largest borrower in the CeFi field so far, we have gradually developed the illusion of “unlimited backup”.
Breaking the silence, the founder of Three Arrows Capital responds to everything: Failure comes from overconfidence and will go to Dubai
The founder of BitMEX: What I know about the collapse of Three Arrows Capital
Toughest Crypto Sanctions in History: Tornado Cash
In August of this year, the U.S. Treasury Department announced that all U.S. individuals and entities are prohibited from using the decentralized cryptocurrency mixing service Tornado Cash, as well as from interacting with Ethereum wallet addresses sanctioned due to the agreement. Penalties for willful failure to comply range from $50,000 to $10 million, and from 10 to 30 years in prison. This is the first time an on-chain smart contract has been directly sanctioned by OFAC (Office of Foreign Assets Control, U.S. Department of the Treasury).
OFAC sanctioned Tornado Cash because it provided substantial assistance, sponsored or provided financial, material, technical support, or provided goods and services to illegal cyber activities inside and outside the United States, and these actions are likely to be harmful to the national security, foreign policy or A significant threat to economic health or financial stability that results in the serious misappropriation of funds or economic resources, trade secrets, personally identifiable or financial information, for the commercial or competitive advantage or private economic gain of some criminal.
After the announcement of this sanction decision, it triggered a series of chain reactions. Both centralized companies and decentralized on-chain protocols took sides. This also triggered a debate in the encryption industry on censorship resistance, including the centralized stablecoin USDC issuer Circle, Uniswap, DYDX and Aave etc. Tornado Cash developer Alexey Pertsev was arrested by the Dutch authorities, and he will be detained until next year’s hearing (February 20, 2023. Not only that, because he cannot compete with the United States, and contributors are afraid of being prosecuted, Tornado Cash DAO has multiple The signature has closed the DAO, the multi-signature wallet has also been deleted, and all DAO funds have been returned to the governance contract.
Related reading: Tornado Cash Sanctioned: Service Provider “Cut Seats” and Anonymous Targeted “Poisoning”
Traditional brands test the waters of NFT: rushing into the new battlefield of Web3
Compared with the high-threshold DeFi, NFT is becoming a common way for many traditional Web2 brands to transform into Web3. In the past year, we can see whether it is social platforms such as Twitter, Reddit, Instagram and TikTok, or luxury and sports brands such as Gucci, LV, Bulgari, Nike, Adidas, Li Ning, or BMW, Ferrari, Arab Cars such as Ston Martin are playing with NFT marketing.
For these brands, embracing NFT is more about meeting customer needs through personalized products, improving their satisfaction and loyalty, and enhancing their own brand value and competitiveness. Of course, the transformation of Web2 also needs to solve common problems such as security issues and data privacy. As far as the NFT industry is concerned, the entry of traditional brands will enrich the application scenarios and needs, which can promote NFT technology to no longer be limited to the encryption circle and reach more mainstream user groups.
It is worth mentioning that former U.S. President Donald Trump (Donald Trump), who previously stated that he “doesn’t like cryptocurrencies”, also came to “bring goods” NFT. He minted 45,000 Trump numbers on the Polygon blockchain. The trading cards were all sold out within 16 hours, with a total sales of about 4.356 million US dollars, and the holders may have the opportunity to meet with Trump.
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The Era of Ethereum Mining Is Over: Ethereum Completes Merger
As one of the important components of Ethereum 2.0, the completion of the merger of Ethereum means that the era of Ethereum POW consensus, that is, the end of large-scale graphics card mining, the ETH main network will be verified by the pledger, and the POW node miners will exit stage of history. The main reason behind the upgrade is that with the large-scale development of Ethereum, the insufficient performance of the Ethereum network and the problem of high Gas restrict the ecological development, while the fragmented chain can improve scalability and reduce transaction costs and time. In addition, the “difficulty bomb” is also one of the key catalysts for the merger of Ethereum. It has been postponed 5 times before the merger. This is a mechanism algorithm that adjusts the difficulty of the chain according to the block time. The purpose is to push POW miners to POS. Simply put In other words, it is artificially increasing the difficulty, so that miners cannot continue to obtain rewards and blocks, so as to avoid the coexistence of new chains and old chains.
For the encryption industry, the merger of Ethereum is of great significance. It can not only reduce Gas fees and increase network throughput, but also attract more verifiers to participate in the protection and construction of the network, and achieve a fairer distribution of rewards, as well as transfer After being a deflationary asset, the network can be made more complete. In addition, after Ethereum is converted to POS, it can achieve green environmental protection, and each transaction will reduce energy consumption by 99.95%. At present, after the merger of Ethereum, the number of pledges on the Ethereum beacon chain has exceeded 15.6 million ETH, and the total number of validators exceeds 490,000.
The Quibbler: Is the Ethereum Merger Overhyped?
After the merger of Ethereum, what major changes will it bring to the encryption industry?
Competing for the Global Virtual Asset Center: Hong Kong Releases Virtual Asset Policy Declaration
As an international financial center, after the United States, Dubai and Singapore, Hong Kong has also joined the ranks of global virtual asset competition, providing comprehensive and powerful support from three aspects: policy, capital and talents. At the end of October this year, Hong Kong issued a policy declaration on the development of virtual assets, which clearly stated the Hong Kong Financial Secretary’s cognition and attitude towards the virtual asset market, regulatory principles and innovative experiments, and expressed the vision of promoting Hong Kong’s development into an international virtual asset center. And the commitment and determination to explore financial innovation with the global asset industry.
Compared with the more cautious attitude in 2019, the encryption policy introduced by Hong Kong this time is more friendly and open. In addition to being open and inclusive to global innovators engaged in virtual asset business, the Hong Kong government is focusing on building a convenient environment and appropriate regulations to promote the vigorous development of the virtual asset industry in Hong Kong, and expresses its welcome to fintech and virtual assets Industry talents gather in Hong Kong. While stepping up preparations for the licensing system for new virtual asset service providers, Hong Kong is also willing to contact the global virtual asset industry and invite relevant exchanges to explore business opportunities in Hong Kong.
In addition, the Hong Kong government has launched three experimental projects, namely, the issuance of NFTs for proof of attendance at Hong Kong Financial Technology Week in 2022; tokenization of government green bond issuance for institutional investors to subscribe; digital Hong Kong dollar, which has the function of a stable currency , can be used as the “backbone” and pillar between legal tender and virtual assets, providing the confidence needed to drive more innovation.
In order to support the development of financial technology and virtual assets in Hong Kong, the Hong Kong government has provided a large amount of funds to support the development of the industry. At present, the sources of funds to support the entrepreneurship and development of virtual assets include financial technology special funds, cyberport venture funds, and science park venture funds. and Hong Kong Investment Management Co., Ltd. Among them, Hong Kong Investment Management Co., Ltd. is described as the “Hong Kong version of Temasek”. The fund was registered in early October this year. It had 30 billion U.S. dollars in funds before, and now it has increased by 30 billion U.S. dollars to a total of 60 billion U.S. dollars.
A comprehensive interpretation of Hong Kong’s virtual asset policy declaration: 3 years of policy changes, comprehensive support for policy funds and talents
Depth: Comprehensive comparison of Singapore and Hong Kong digital currency regulatory policy differences
Crypto Lehman Moment: FTX Bankruptcy Hits Markets
In November, a news release from CoinDesk stated that a whopping $6.112 billion in FTX-issued FTT tokens was on Alameda Research’s balance sheet, according to a private financial document they reviewed. Subsequently, Binance founder Zhao Changpeng tweeted that as part of Binance’s exit from FTX equity last year, Binance received approximately $2.1 billion in cash equivalent (BUSD and FTT). As a result of the recent revelations, Binance has decided to liquidate all remaining FTT on our books.
Although SBF denied it, it didn’t seem to work. Then FTX broke out and liquidity began to dry up. Binance chose to abandon the acquisition plan after trying to “help”. Ultimately, FTX filed for Chapter 11 bankruptcy reorganization on November 11. According to the current CEO John Ray III after the investigation, FTX not only suffers from compromised system integrity and flawed foreign regulation, but also concentrates control in the hands of a very small number of inexperienced, immature and potentially compromised individuals. But SBF denied all the allegations in a draft testimony at a U.S. House Financial Services Committee hearing. At the same time, SBF’s political donations and its private relationship with top U.S. regulators also surfaced. Alameda and the FTX “core team” and their parents are inextricably linked to US regulators, Wall Street executives, and leaders of the Democratic parties, and the so-called effective altruism that SBF has always claimed is just a “fig leaf” for nepotism and political pragmatism .
At present, SBF has been arrested by the Bahamian authorities and has agreed to be extradited to the United States. His legal team is working on an extradition plan. And Ray is planning to implement five major restructuring plans to try to restore the situation and ensure the maximum value of relevant stakeholders. With the collapse of the FTX empire, not only Sequoia Capital, Temasek, Softbank, Paradigm, Tiger Global and other well-known institutions have suffered a lot of losses, BlockFi, Genesis, Voyager Digital, etc. have filed or are on the verge of bankruptcy, and the number of creditors involved may exceed 100 million people.
According to Jefferies Financial Group, a well-known Wall Street investment bank, FTX creditors can recover about 20% to 40% of their funds, but it is estimated that the fees of lawyers and other managers in this bankruptcy process, which may last for several years, may reach 500 million to 1 billion US dollars , so the net assets recoverable by creditors may be between 10% and 35% of the assets they hold on FTX.
FTX ends: deep dive into SBF’s “political business experience” and the private relationship of high-level regulators
30 pages of legal documents reveal the inside story of FTX bankruptcy
All in all, 2022 is a year where magic and reality intertwine for the encryption field. Many well-known companies and investors “hate 2022” because of stepping on thunder, but this also shows that the construction of regulatory compliance and risk control mechanisms is still on the way. The breakthrough of encryption technology and the breakthrough of applications will fill the new journey with forward energy.
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