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Round-Up: The Good, The Bad, And The Ugly Of 2022
It's been a tough year for the crypto world. During the last bull run, the DeFi industry lost its way after being lured by the siren-song of centralization, and has been forced to relearn some of its earliest and most fundamental lessons.
As the year went on, one after another of the mighty edifices of the blockchain sector tumbled, like a line of dominoes set in motion by an impatient toddler who hasn't grasped the importance of decentralization. As 2022 comes to an end, the wreckage of the sector lies strewn all around, parts of it still leaking radioactivity into its neighbors.
For all that, there have been some gemstones glittering in the cesspit of 2022's Crypto Winter, if you know where to look for them. And who better to dig them out and give them a polish than REX Wire?
So, here's a (necessarily incomplete) round-up of the key events in the DeFi space: The Good, the Bad, and the downright Ugly of 2022.
NFTs and the Metaverse were big blockchain themes for 2021, and continued to make headlines throughout 2022. Reflecting intense interest from celebrities, retail users, fashion brands, and other large commercial organizations, Twitter allowed users to link their wallets and display their NFTs as PFPs.
The world changed with the Russian invasion of Ukraine, which has seen tens of thousands of casualties and millions of people displaced—and pushed the rest of the world firmly in the direction of inflation and recession.
Crypto has played an unexpected role in the crisis. As cyber attacks knocked Ukraine's banks offline, the crypto community donated tens of millions of dollars for aid in the opening weeks of the conflict alone (including a CryptoPunk NFT worth $200,000).
Later in the year, the Bank of Russia and the country’s Ministry of Finance agreed to allow cross-border settlements in cryptocurrencies, recognizing that many citizens already used crypto. The measure would help Russia to circumvent the loss of access to global financial services imposed as part of the heavy sanctions placed on it. Crypto was not legalized as a means of payment within Russia itself.
Towards the end of Q1, the Fed began to raise interest rates for the first time since 2018. Over the course of the next nine months it would hike rates aggressively from their historic low of 0.25% at the beginning of the year to 4.5% by mid-December—the highest since before the Global Financial Crisis. Risk assets, including stocks, crypto, and every currency that wasn't the US dollar, took a hammering.
Crypto Winter set in. Against a bleak backdrop for the coming year, much of the digital asset space fell into economic and emotional depression.
Meanwhile, Ruby and SKALE continued to BUIDL...
SKALE Network began the first of a series of v2 updates, which would see the network upgraded to host new chain types, and support direct interchain transfers—all of which would allow the "SKALEVERSE" to act as a diverse but seamless whole, rather than a collection of independent chains. Shortly after the first set of upgrades, the Europa Hub went live, providing a default on-ramp for tokens and users from Ethereum mainnet, and establishing vital shared token standards.
No crypto round-up of 2022 could be complete without mention of the sudden and catastrophic implosion of the Terra ecosystem, which saw $60 billion erased from the market as both the LUNA token and the UST stablecoin collapsed to near zero. The immediate aftermath saw the failure of 3AC, a major crypto hedge fund, and knock-on consequences for other large organizations in the space.
Following a successful audit by SlowMist, Ruby.Exchange goes live in beta on the Europa SKALE Chain. As the first AMM on the SKALE Network, Ruby offers gasless swaps for popular Ethereum tokens, LP and yield farming opportunities, RUBY staking, and raffles for zero-fee trading gemstone NFTs.
Crypto lender BlockFi, which had experienced a run on user withdrawals and heavy losses in the bear market, announced a deal with FTX US that provided it with hundreds of millions of dollars of credit. In return, FTX US gained the option to acquire BlockFi for up to $240 million.
Celsius Network, meanwhile, failed to find a white knight in FTX, and was forced to file for Chapter 11 bankruptcy.
In August, the US Treasury took the almost unprecedented step of sanctioning Tornado Cash. The decentralized mixer had been used by the Lazarus Group—a hacker organization with links to North Korea—to launder funds stolen in a series of major hacks, including the $600 million Ronin Bridge and $100 million Harmony Bridge exploits. What dismayed the crypto community, and galvanized legal action in response, was that the authorities were sanctioning not a person or an organization, but a piece of open-source software—raising questions for developers, users, and the implications for freedom of speech across the world.
The episode was the latest development in the "encryption wars" that began in the 1990s, when Phil Zimmermann launched Pretty Good Privacy (PGP), one of the first widely-used public key encryption applications. A criminal investigation into Zimmermann followed, which ultimately resulted in encryption being protected under the First Amendment.
Perhaps the high point in the crypto year was provided by Ethereum, which pulled off a successful Merge in mid-September. The Beacon Chain, a proof-of-stake blockchain that had been running since December 2020, took over as the validation layer of the network, putting an end to Ethereum's proof-of-work phase. The network upgrade immediately reduced Ethereum's power usage by 99.95% and paved the way for future improvements, including sharding.
Not to be outdone by Twitter, Telegram launched Fragment, its own NFT marketplace for usernames, built on the TON blockchain. Fragment went on to sell $50 million worth of usernames in less than a month.
It was a big month for social media, as Elon Musk finally completed his controversial, on/off $44 billion buyout of Twitter. He immediately fired half of the company's workforce, then demanded that remaining employees opt into an agreement to work "long hours at high intensity", or else accept a severance package for three months' pay—prompting between half and three-quarters of those who survived the first cull to follow their colleagues out of the door.
Musk's acquisition of Twitter also gave a boost to Dogecoin, his pet crypto, and prompted rumors of wider blockchain integrations for the platform.
Alongside Terra's demise, the crypto sector's defining event for 2022 occurred in November with the closure of FTX, the world's second-largest crypto exchange. Rumors that Alameda, FTX's trading arm, was heavily dependent on FTX's token (FTT) as collateral, led to panic-selling and mass user withdrawals on the exchange. It rapidly transpired that FTX was insolvent, and had almost certainly allowed Alameda to trade with customer funds. CEO Sam Bankman-Fried (SBF) tried to raise funding for liquidity, but failed and ultimately filed for Chapter 11 Bankruptcy. Contagion spread to other companies with a financial connection to these giants of the blockchain space, leaving major creditors (including broker Genesis and crypto exchange Gemini) with nine- and ten-figure holes in their balance sheets.
In better news, the SKALEVERSE formally came into being with the launch of Metaport, SKALE's interchain widget. Metaport enables gasless, instant transfers between SKALE Chains, connecting the whole of the SKALE ecosystem into a seamless whole.
Amid cratering crypto prices, Nayib Bukele, permabull president of El Salvador, announced that the country would buy 1 BTC per day, thereby growing its existing stash of almost 2,400 BTC (bought at significantly higher prices since El Salvador officially made BTC legal tender in September 2021) by dollar cost averaging through the dip. In the face of stiff opposition from detractors, Bukele remains committed to making his country a crypto hub and a beneficiary of the possibilities blockchain offers.
In response to FTX's deliberate obfuscation of its accounts, Binance and a number of other major exchanges published proof-of-reserves. Based on a Merkle sum tree concept proposed by Vitalik Buterin, Binance demonstrated its users' BTC holdings were 101% capitalized—though skeptics later raised a number of objections.
Finally, in another positive step towards global recognition, Brazil passed a bill to regulate the use of crypto as a means of payment. While not going as far as El Salvador by making bitcoin legal tender, this represents a huge step forward in normalizing crypto use for the country's population of 200 million.
On December 12, SBF was arrested in the Bahamas, with the expectation that he would be extradited to the US and charged with financial crimes, including wire fraud, securities fraud, money laundering, and violating campaign finance laws. He was deemed a flight risk and denied bail until his February hearing. He faces up to 115 years in jail if convicted of all charges.
Later in December, Elon Musk called time on his brief and unpopular time as Twitter CEO, which saw users, advertisers, and employees leave the company in droves. Following a poll asking whether he should step down, he committed to resigning as soon as a suitable replacement could be found.
As we move into January, there are plenty of challenges ahead of us, but 2023 is set to be an exciting year. We're looking forward to what comes next, and we hope you are too.
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