The crypto star that fell in the crypto winter

Investor sentiment has been dampened again as investors worry that the Federal Reserve may raise interest rates more sharply to curb inflation. Bitcoin continued its decline today, falling as much as 6.5% in the morning, hitting its lowest level since December 2020. In addition, a series of other mainstream tokens from Ethereum to Avalanche have suffered serious losses. Investor sentiment towards the entire crypto market is very bad now. Today, Edward Moya, senior market analyst at Oanda, said that if Bitcoin falls below $20,000, it may lead to worse price trends...

Crypto market in winter

Cryptocurrencies have fallen into a mess recently, with BTC falling to $21,000 and ETH falling to $1,100. In addition, the total market value of cryptocurrencies has also plummeted. According to CoinMarketCap data, the total market value of cryptocurrencies has fallen to around $900 billion. The current total market value is about $912.2 billion (912,264,249,830), the lowest point since January 2021. In addition, with the general plunge in cryptocurrencies, the total amount of liquidation has continued to soar. According to Coin data, in the past 24 hours, the total amount of liquidation in the entire network has reached $1.46 billion, with a total of 220,500 users liquidated. Among them, BTC liquidated $291 million and ETH liquidated $436 million.

Data source: CoinMarketCap

At present, the two major mainstream currencies, BTC and ETH, have fallen sharply. However, compared with BTC, ETH has been in crisis recently. Today, ETH fell below $1,100 and returned to the beginning of 2021. Compared with its previous high of $4,815, all this seems like a dream and seems extremely unreal. In addition to the serious decline, the panic about ETH in the market has also reached its peak. The reason for this can be traced back to the decoupling of stETH, a token pegged to Ethereum's ETH.

During this period, the decoupling of stETH led to a sharp drop in the entire crypto market, which made many people think of the tragedy of LUNA and UST, causing many people to panic. After all, ETH's influence is far greater than LUNA. Once it collapses, it will be a bigger disaster for the entire crypto market. Although such a statement was quickly refuted by technicians, saying that it is reasonable for stETH to be slightly lower than 1 ETH for a long time, and it is even less likely to cause a sharp drop in ETH, the decoupling of stETH has already planted the seeds of panic.

In a bear market, even the slightest disturbance can cause huge waves. After Celsius exploded, it began to sell a large amount of stETH on Curve in exchange for ETH and sold a large amount of ETH, causing the price of stETH to fall again. This made stETH investors begin to follow suit in panic, and then the market sentiment of ETH began to fall into a deeper panic.

Of course, no one can be safe in a bear market. According to L2Beat data, the total TVL of the Layer2 network fell to US$4.14 billion, the lowest since October 28, 2021. Among them, Arbitrum (US$2.02 billion), dYdX (US$959 million) and Optimism (US$683 million) are the Layer2 networks with the highest TVL.

In addition, the NFT market, which was still active some time ago, has also begun to move towards a bear market winter. According to NFTGo.io data, when the market began to plummet yesterday, the intraday decline of the floor prices of blue-chip NFT series such as BAYC and Azuki exceeded 20%. The overall vitality of the market has also declined a lot. It can be seen that the current crypto market has already entered a bear market winter. Although this winter will last for a long time, how many Web3 natives who truly believe in it are afraid of the winter?

A look at the crypto stars that fell this year

There are always new projects emerging in the crypto industry. Every bull market is accompanied by the emergence of many new stars, and every bear market is accompanied by the fall of new stars. In the blue ocean of Web3, most of the popular projects will end in failure, and there are very few projects that can really succeed. But even if these projects eventually fall, they will provide indispensable power for the development of Web3 and the crypto industry, which can be said to be a glorious defeat.

So what are the new crypto stars that have gone through so many ups and downs, became popular this year, and then disappeared in a flash?

1. LUNA

Do you remember LUNA's rise against the trend in February? When the mainstream market was sluggish at the time, LFG sold nearly 20 million LUNA and raised $1 billion, and then used the raised money to buy BTC as a reserve for UST. This move made LUNA rise against the trend in the crypto market that was suffering a Waterloo at the time. For a time, the green spot in the red made LUNA the most eye-catching hotspot in the currency circle.

Overview of market gains on February 23

When LUNA was at its peak, many people in the crypto market began to express the possibility that Terra, which was developing at a rapid pace, might collapse. Unexpectedly, such predictions came true in less than three months.

On May 7, 2022, Terraform Labs, the organization behind Terra, executed a planned, publicly announced withdrawal of $150 million from Curve's liquidity pool 3pool. But shortly after the withdrawal, two users swapped approximately $185 million of UST for USDC within two hours, attacking the less liquid and vulnerable pool. Terraform Labs then withdrew another 100 million UST from 3pool to rebalance it. But these two large transactions directly caused UST to break away from its peg to the US dollar, triggering a massive sell-off on exchanges, and the massive sell-off made UST's decoupling even more severe.

On May 9, in order to save the token’s anchoring status, UST’s custodian, Luna Foundation Guard (LFG), sold billions of dollars worth of BTC reserves to buy back UST from the market. However, LFG was ultimately unable to save UST from its death spiral.

It is also worth noting that the algorithm that keeps UST pegged to the dollar is a minting and burning mechanism between LUNA and UST, which creates a huge arbitrage opportunity when UST loses its peg (users can buy a lower-value UST from an exchange and then burn LUNA for $1). This led to a large number of LUNA minted, and eventually LUNA entered a plunge mode under hyperinflation and eventually returned to zero. The algorithmic stablecoin empire collapsed overnight.

2. Celsius

Among DeFi lending platforms, Celsius Network is quite typical. Celsius is a large financial management platform and is relatively well-known in the United States. However, in the recent market turmoil, Celsius announced yesterday that it would suspend all withdrawals, transactions and transfers. The official reason given was extreme market conditions and the need for stable liquidity, and stated that this move was in the interests of the entire community. After the news came out, Celsius's token CEL began to plummet.

The direct cause of Celsius’ collapse seems to be the depegging of stETH, but the liquidity crisis faced by Celsius this time is also the fruit of its own actions. Previously, Celsius promised to give depositors an Ethereum deposit yield of up to 8%. In order to achieve this yield, Celsius chose to replace a large amount of ETH with ETH2.0 derivatives such as stETH, thereby obtaining staking income. This also directly led to a lot of funds that Celsius could not get back, thus falling into the current dilemma of insufficient liquidity.

It is worth noting that a large part of the reason for Celsius’ collapse may be the poor investment ability of its team. First of all, Celsius was honored to be one of the seven whale wallets that contributed to the collapse of UST, which was previously invested in UST. Although the funds lost in the UST incident were not much, once the news was disclosed, Celsius fell into a crisis of trust, and a large amount of funds began to withdraw from Celsius at an accelerated pace. This became the fuse for Celsius to fall into a collapse crisis.

In addition, Celsius's two thefts were also exposed. Celsius Network lost at least 35,000 ETH in the Stakehound key loss crash in May 2021, but interestingly, Celsius kept it a secret until June 6, 2022, when Dirty Bubble Media first disclosed relevant information. In addition, Celsius also lost $50 million in the Badgerdao hack.

Faced with an unfillable hole, Celsius finally chose to suspend all withdrawals, transactions and transfers, and Nexo's proposal to acquire Celsius seemed to declare Celsius' bankruptcy.

3. Axie Infinity

Speaking of the hottest projects in 2021, the former king of blockchain games, Axie Infinity, must have a place. In the week of August 8, 2021, the game had revenue of over $215 million at its peak. Last October, after Axie raised $152 million in funding led by a16z, its creator Sky Mavis was valued at $3 billion. However, since November 2021, Axie Infinity has been in a steady decline, with revenue falling again and again, especially after the sidechain Ronin Network where Axie Infinity is located suffered a large-scale hacker attack in March, Axie Infinity's various data plummeted.

In addition, according to CoinMarketCap data, Axie Infinity's game token SLP has also been falling since November and has now fallen to $0.003, but it has fallen 99% from its previous historical high of $0.4191. Obviously, SLP has fallen into a zero crisis.

Currently, the economic activities of Axie Infinity mainly rely on two functions: fighting and breeding. Axie pets are used to fight to earn AXS and SLP tokens, while Axie pets are bred to consume AXS and SLP. From this, it can be seen that the game token SLP is the core token of Axie Infinity. Once SLP returns to zero, Axie pets will become worthless and the Axie Infinity ecosystem will collapse.

However, it is worth mentioning that Axie Infinity is different from LUNA and Celsius. The problems encountered by Axie Infinity are common to the entire blockchain game market, and it has not yet reached the point of exhaustion. The Axie Infinity team is also working hard to promote the development of the project, trying to solve the problem of token value preservation, and working hard to pull Axie Infinity out of the death spiral. Therefore, although it is unknown whether Axie Infinity can survive this long winter, it can be seen that Axie Infinity still has a little confidence to turn the tide.

Final Thoughts

The overall crypto market is in a downturn now. It is foreseeable that the bear market will still take a long time. Many people may lose confidence and leave after feeling the exhaustion and despair brought by the bear market again in the long winter. But more people will choose to believe in the arrival of light.

Currently, the crypto market is still in a stage of rapid development, and many projects are in the stage of exploration. The bear market will be the best cradle for exploring technology. The haze shrouded by the bear market can calm all the overly agitated hearts in the bull market again and focus on the value of the Web3 project. I believe that after the tempering of the bear market, the Web3 project will be greatly improved again.

Of course, the projects that fell in this bear market do not have to be rejected. There is a kind of failure called honor in defeat. The fallen projects will become the cornerstone of the development of Web3, and more projects will continue to improve and progress on this basis and move towards the next bull market.