The 2022 Crypto Crash Left Almost No Corner of the Industry Untouched

By late June 2022, losses were piling up across nearly every segment of the crypto industry — individual traders, protocols, centralized and decentralized platforms, venture funds, and hedge funds alike were all reporting significant damage as market conditions deteriorated sharply.

More than $2 billion in liquidations occurred in the week following the prior Monday, including a single day in which $685 million was liquidated, according to Coinglass data.

The pain wasn't confined to leveraged positions. Platforms like Anchor and Celsius had been widely regarded as "safe" places to park funds, illustrating how a sense of security during a bull market can mask underlying fragility that only becomes visible in hindsight.

Warning signs had been building for some time: rock NFTs trading for $1.3 million, Loot NFTs reaching $1.4 million on the premise that "someone else will build the game," and a boom-and-bust cycle in yield farming that generated substantial waste and speculative excess over roughly two years. Even so, the severity of the downturn caught many experienced market participants off guard, as prices moved through one liquidation threshold after another in rapid succession.

Aside from a subset of commentators now framing the downturn as extra time to focus on building, sentiment across the industry turned uniformly negative as the bull market ended. Assumptions that had gone unquestioned during the run-up were abruptly tested, forcing difficult decisions on nearly everyone except a small number of well-positioned participants. Previously influential figures lost standing, prominent funds were forced into asset sales, and even persistently bullish commentators began showing signs of capitulation. Broader macro conditions suggested a near-term return to previous highs was unlikely, though the market appeared closer to a bottom than a top.

The speculative excess and negative headlines of the preceding period could, in one reading, be seen as a byproduct of the mass adoption the industry had previously hoped for.

Amid the turmoil, Sam Bankman-Fried and FTX emerged as a relative point of stability, with FTX using the downturn to extend its influence by stepping in to support other centralized platforms — including BlockFi, which had reached approximately $15 billion in assets under management at its peak, and Liquid Group.

By contrast, Celsius (roughly $20 billion in AUM at its peak) and Three Arrows Capital (approximately $18 billion in AUM at its peak) served as cautionary examples of the risks created when institutional lending and credit exposure aren't visible to retail depositors — raising the question of whether either firm's practices could have persisted as long as they did had their operations been fully transparent and on-chain.

In contrast to these centralized failures, decentralized protocols largely continued to function as designed throughout the turmoil: Aave continued issuing loans, DAI held its peg, and — despite its later collapse — LUNA had at one point made its creator, Do Kwon, both wealthy and widely known.

The combined collapse of Celsius, Terra's LUNA, and Three Arrows Capital was expected to trigger significantly stricter regulatory scrutiny across the industry. While these failures made a strong case for tighter oversight, there remained hope within the industry that any resulting regulation would be proportionate rather than overly punitive.

Restoring focus to genuine utility and underlying fundamentals was widely seen as the only real path out of the current downturn, even as many wondered whether the next market cycle would ultimately break the same patterns.