FTX is not the first and will not be the last. Here are the 6 biggest crashes in the history of cryptocurrencies

On November 12, Autism Capital tweeted that FTX insiders were likely trying to abscond with the funds. The amount transferred was approximately US$380 million. It looked like a hacker attack, but it could also be an insider.

Image source network

Yesterday, the address exchanged all of its more than 48.45 million DAI for about 37,500 ETH in multiple times. As of now, the address holds 217,235 ETH, worth about US$276 million.

FTX’s dramatic collapse

No one expected that in addition to "312" and "519", the sudden collapse of FTX would lead to another "119" anniversary in the crypto industry.

The FTX incident is also seen as the Lehman crisis in the crypto world. Looking back now, although this avalanche caught many people off guard, it also gradually became more compact:

First, a financial document disclosed by CoinDesk on November 3 pointed out the assets and liabilities of SBF's Alameda Research. The key point is that it held a total of US$14.6 billion in assets as of June 30, nearly half of which were related to FTT and Solana.

Subsequently, FUD sentiment continued to ferment, and on the evening of November 6, Zhao Changpeng announced that Binance would sell all FTT on its books in the next few months, which accelerated the collapse.

Although Alameda's balance sheet was worrying at first, the back-and-forth statements between Alameda, SBF and Zhao Changpeng stabilized market concerns to a certain extent. Everyone was more focused on watching the show and did not anticipate the severity and impact of the incident.

It was not until the early morning of November 9 that SBF first tweeted that "a strategic transaction agreement has been reached with Binance on FTX.com, and the team is working hard to handle the backlog of withdrawals." Zhao Changpeng then retweeted to confirm that a non-binding letter of intent had been signed. After a brief period of optimism, the market came to its senses, and the severity of the FTX crisis began to emerge.

The impact of the "119" incident on the entire market is not only in the dimensions of assets and prices, but more importantly, it has a profound impact on industry confidence and regulatory expectations: one of the top three global trading platforms, a leading company in the limelight, privately misappropriated user assets and even caused billions of dollars in losses, causing it to collapse rapidly overnight.

Looking back at the entire FTX exposé up to now, few people could have imagined that the beginning of it all would be so dramatic. No one would have thought that a $32 billion giant would collapse so quickly, and the secondary disasters it caused may have just begun.

This has also led to rumors about other CEXs in recent times, especially the market's doubts about their reserve situation, which has caused a sudden increase in bank runs on many trading platforms, so that bankrupt trading platforms have begun to disclose their reserves (as for the actual effect, it remains a matter of opinion).

CEX’s “FTX Moment”

Apart from FTX, looking at the crypto industry and the entire history of CEX development, we will find that various accidents involving CEX (hacking, theft, etc.) are almost impossible to eliminate.

• Mt.Gox: Once the world's largest Bitcoin trading platform

Mt.Gox is the well-known "Mentougou" in the industry. When it was at its peak, its trading market share reached more than 80% of the world. Therefore, it is conceivable that after the hacker theft of coins broke out that year, it brought unprecedented impact to the entire Bitcoin trading market.

However, although the company officially announced the loss of 750,000 bitcoins of its customers and 100,000 bitcoins of its own company, the whole process seems quite confusing and bizarre. According to media reports, of the "stolen" bitcoins, hackers actually only stole 7,000, and the rest were framed by insiders and were actually taken away by "insiders", and this insider is likely to be the CEO himself...

When the Mentougou incident happened, the “stolen” bitcoins were worth a total of $487 million. If calculated at today’s prices, the value of this amount of bitcoins is more than $30 billion.

In October last year, the Tokyo District Court officially approved the repayment plan proposed by the Bitcoin trading platform Mt.Gox for creditors. 99% of creditors voted to compensate the victims based on "90% of Bitcoin holdings."

In October of this year, the Mt. Gox repair plan claims system released a new feature that allows creditors to choose repayment methods and register recipient information on the online claims reporting system. The deadline is January 10, 2023.

• Bitfinex: Issuing bonds to save itself, the first trading platform to "swap debt into equity"

In August 2016, 120,000 bitcoins were stolen from Bitfinex, which was worth $70 million at the market price at the time. Just as the market was doubting and worried about the second "Mentougou", Bitfinex came up with a way to force users to tide over the difficulties with it:

It compulsorily cut 36% of the digital assets in almost all user accounts, and issued each user a BFXCoin Token equivalent to 36% of the deposits in their account. The initial value was set at US$1, which can be used for trading and for purchasing shares of Bitfinex's parent company iFinex - analogous to the stock market, that is, issuing convertible bonds to survive the crisis.

Zhao Dong, the founder of DFund, who was once extremely active on Weibo and frequently spoke out for Bitfinex and was known as the "Bitfinex China spokesperson", chose to "swap debt into equity" at this time and became a shareholder of Bitfinex.

• QuadrigaCX, whose founder died mysteriously

Of course, there are also the most bizarre and most shady trading platforms. Perhaps the most bizarre one is QuadrigaCX, Canada’s largest cryptocurrency trading platform:

The founder Cotten died unexpectedly. What was quite strange was that the private key of QuadrigaCX's cold wallet was controlled by Cotten alone, which resulted in the inability to withdraw crypto assets worth about 145 million US dollars. In the end, investors and other relevant stakeholders even demanded an autopsy (Netflix also made a documentary "Don't Trust Anyone: The Mystery of Cryptocurrency").

Image: Netflix documentary "Don't Trust Anyone: The Mystery of Virtual Currency" cover

So to some extent, whether you are an old player or a new user, it is also a topic that must be considered to gradually understand DEX and shift your usage habits and asset allocation towards DEX.

Do Kwon and the fall of 3AC

Looking back now, the crypto industry has been hit hard this year. In addition to the recent FTX collapse, there were also the Do Kwon and 3AC incidents that had a far-reaching impact on the industry. They can be regarded as the most catastrophic events in the crypto industry since Mt. Gox.

• The Terra Empire Collapses

Looking back at the entire UST depegging crisis in May and the death stampede of the entire Terra ecosystem, we will find that the self-balancing mechanism of the algorithmic stablecoin minted by LUNA-UST in both directions is the culprit.

First, on May 8, 2022, some whales began to sell UST one after another, causing UST to slightly anchor and the liquidity of the UST-3Crv pool began to tilt.

On May 9, a large amount of funds began to flee Anchor, which put great pressure on UST anchoring. In response, Luna Foundation Guard (LFG) proposed a rescue measure, which would loan $750 million in Bitcoin to OTC trading companies to protect UST pegs, and loan 750 million UST to accumulate Bitcoin.

The last straw that broke the camel's back was that Do Kwon did not take effective measures to intervene in the self-balancing mechanism of LUNA-UST:

After UST depegged below $1, it first hovered between $0.9 and $1. The market's awareness and the confidence of UST major holders have not yet reached the bottom of the collapse. Although the behavior of buying UST to cast LUNA for arbitrage has begun to increase , compared with the vast majority of users who still trust the Terra ecosystem, such arbitrage scale has not had much impact on Terra's exchange rate peg.

Photo: Do ​​Kwon himself

Until Do Kwon continued to disappear and did not propose effective measures in time to stabilize market expectations, and allowed the UST exchange rate to be at a discount for a long time , market confidence finally collapsed under the passage of time and the increasing arbitrage temptation. In the following days, the original LUNA and UST completely collapsed.

After that, a series of historical materials about Do Kwon were dug up one after another (including Rick Sanchez, an anonymous member of the algorithmic stablecoin project Basis Cash), and his whereabouts are still unknown. In September, Interpol issued a red warrant for Terra founder Do Kwon, completing his transformation from an industry figure to a crypto wanted criminal.

• Three Arrows Capital’s sudden collapse

Three Arrows Capital suddenly collapsed in a series of crises triggered by the collapse of Terra. As a crypto hedge fund founded by Su Zhu and Kyle Davies, 3AC, which was established in 2012, has been thriving in recent years.

Especially with the huge bets on GBTC, Avalanche, and Terra, as well as Su Zhu's high-profile debate on Ethereum and new public chains on social platforms, it once attracted the attention of the entire industry.

But after the Terra Empire collapsed in May, cryptocurrency broker Voyager Digital suddenly announced at the end of June that it had issued a default notice to 3AC through its operating subsidiary Voyager Digital LLC because 3AC failed to repay 15,250 bitcoins and 350 million USDC loans on time.

This incident completely lifted the lid on the 3AC incident. In early July, 3AC representatives filed for bankruptcy protection in a New York court under Chapter 15 of the U.S. Bankruptcy Code.

summary

There is nothing new under the sun. The once talented trader and DeFi whale became an industry villain overnight, and the once too-big-to-fail public chain ecosystem and stable computing empire collapsed rapidly within a week.

Although these crises have triggered liquidity traps in the industry to a certain extent and may even lead to stricter and more negative regulatory responses, the risks exposed may not be a bad thing. At least they will gradually enhance the robustness of the system.

There are no myths in the crypto world. Breaking the obsession with giant whales and demystifying institutions may be the hidden threads in this process.