Worst Crypto Scams Of 2022

After the collapse of the FTX exchange, crypto markets are reeling. 2022 was an unbelievable year for crypto. So, to summarize, We have listed some of the worst crypto scams of 2022. After several high-profile bankruptcies in the industry, trust in cryptocurrency plummeted. Retail and institutional investors started cashing out funds. Redeeming stablecoins for physical greenbacks was rapidly increasing.

But those who withdrew money weren’t just prudent investors trying to salvage the market but also bad actors trying to seize large amounts of wealth. From the February low-key cyber-attack on Wormhole’s cryptocurrency platform to the November high-profile collapse at FTX, 2022 was a year full of scams, frauds, and shady deals.

Feb 2022: Crypto Platform Wormhole Loses $320M After Attack

When Wormhole’s cryptocurrency platform was hacked, more than $320 million in crypto was stolen.

The hack exposed vulnerabilities in decentralized finance systems to hackers, even though the popular bridge linking Ethereum and Solana (ETH-USD) could retrieve the stolen assets.

Ronghui Gu, CertiK’s co-founder, stated that the hack of CertiK had caused a panic. “The $320m attack on Wormhole Bridge demonstrates the increasing trend towards attacks against blockchain protocols”.

“This attack raises concerns about security on the Blockchain. 2022 has proven that scammers are becoming more inventive since then”.

March 2022: 173,600 Ethereum And $25.5M In USDC Stolen From Axie Infinity

Hackers were able to exploit an Ethereum-based sidechain running the popular online game Axie Infinity NFT in March.

Sky Mavis, a Vietnamese studio, developed this game. The hackers were able to steal Ethereums and cash of around $615M from the web3 game.

The attack was linked to the Lazarus hacking group and APT38 hackers operating cyber attacks against the North Korean government.

May 2022: Terra’s Collapse

Terra’s UST (LUNA1–USD) algorithmic stablecoin ecosystem collapsed, destroying around $40bn of cryptocurrency ecosystem market value. In May, the UST stablecoin was de-pegged and dropped from $1 to $0.12.

In September, a South Korean court issued Do Kwon an arrest warrant. Do Kwon was the founder of Terraform Labs and the parent company of the crashed stablecoin TerraUSD.

Do Kwon was accused by Seoul’s prosecutors of investment fraud. This refers to deceptive practices that fraudsters use to induce people into buying products based on misleading or false information. The South Korean prosecutors are trying to get Do Kwon in custody and have tracked him to Serbia.

June 2022: The Collapse Of Three Arrows Capital

Many cryptocurrency-focused hedge funds, and other cryptocurrency companies, held large amounts of the Luna cryptocurrency that was connected “algorithmically” to the stablecoin UST.

Three Arrows Capital, a crypto-hedge fund (3AC), was one of the most prominent Luna holders. 3AC could not sell large amounts of Luna they owned due to smart contract staking agreements and suffered a loss of up to 99% on their investment.

3AC filed for Chapter 15 bankruptcy on July 1, 2022. Three Arrows Capital had borrowed money from other cryptocurrency entities within the interdependent crypto ecosystem. A $650M loan was made to Voyager Digital by the crypto hedge fund. The US Regulators are now investigating the bankrupt crypto hedge funds. New York bankruptcy judge John C. Smith has stated that he will issue subpoenas to the founders and officers of Three Arrows Capital.

US Bankruptcy Judge Martin Glenn of the Southern District of New York published a document in court that said: “The foreign representations and their agents can serve subpoenas to produce documents and testimony upon founders, investment managers, and any other person that may have information regarding Three Arrows’ affairs.”

The document names Su Zhu and Kyle Davies, the founders of Three Arrows Capital, responsible for the collapse in July and left behind $3.5bn in debt. Now, the hunt is on to retrieve the remaining assets of the hedge fund and return them to investors.

According to Teneo in New York, charged with recovering the funds for the liquidation, Su and Davies were not cooperative. Three Arrows Capital founders claim they are in Dubai and Bali, which Teneo claims are convenient “jurisdictions that have difficulties in enforcing foreign courts orders.”

One of Three Arrows Capital’s founders plans to film a podcast about “life and mental well-being,” possibly from his new location in Dubai. One Twitter follower quickly reminded him of the billions of dollars owed to creditors after the collapse at Three Arrows Capital. He replied, “all proceeds going towards creditors?”

Reporters spoke with Alex Svanevik (CEO of Nansen.ai) about the management practices employed by Three Arrows Capital. He stated that there was “certainly egoistic.” A few weeks ago, Kyle still considered 3AC the most successful crypto fund’. Another factor is poor risk management. They doubled down on strategies that failed: GBTC and stETH.

June 2022: The Collapse Stablecoin Terra

The May collapse of Terra’s UST stablecoin Terra had a domino effect on the crypto market and brought down the entire sector. One after another, crypto lending firms took severe hits in the crypto crash that followed.

Once one of the biggest crypto lenders, Celsius filed for bankruptcy in July. Celsius clients reported that they were unable to withdraw their funds from June.

Alex Mashinsky, the former CEO of Celsius, tried to calm fears by stating that the company wasn’t stopping withdrawals.

Celsius then froze all accounts just days later. Coindesk and the Financial Times had reported that Mashinsky withdrew $10 million weeks before Celsius froze customers’ accounts and filed for bankruptcy.

According to the Financial Times, Alex Mashinsky’s spokesperson stated that the Celsius founder had withdrawn a portion of cryptocurrency from his account. Much of it was used to pay federal and state taxes.

November 2022: The Collapse Of FTX

In May 2019, the FTX exchange was established in the Bahamas, an offshore finance haven. Public reports circulated in November, citing leaked financial statements from the company and questioning the liquidity and health of FTX and Alameda Research’s trading arm.

Ian Allison revealed the details of Alameda Research’s balance sheet irregularities. Allison stated that a large portion of $14.6bn worth of assets held by Alameda Research was in FTX’s FTT (FTT–USD) token.

The collapse of FTX started in earnest when Binance CEO Changpeng Zhao stoked a run on the FTX exchange by tweeting that his exchange would liquidate all its holdings in FTX’s native FTT token.

This once-respected cryptocurrency exchange hosted events with Tony Blair and Bill Clinton. It quickly disintegrated, and FTX filed for bankruptcy in Delaware on 17 November.

Bankman-Fried was arrested for “financial offenses” violating laws in The Bahamas and the United States. The Securities and Exchange Commission (SEC) then indicted him for defrauding investors of $1.8bn.

Thousands of users of FTX’s cryptocurrency exchange are now unable to withdraw funds. According to a court filing last week, the once-recognized exchange owes nearly $3.1bn to its 50 largest creditors.

John Ray, FTX’s current CEO, told Congress Tuesday that FTX had lost $8bn in customers’ money. Ray stated that the company was composed of “absolute control in the hands of a small number of grossly inexperienced and non-sophisticated individuals.”

CNN reports that Bankman-Fried’s maximum US sentencing guidelines could see him sentenced to 115 years imprisonment if convicted of all eight charges against him.

At a press conference, the US attorney, Damian Williams, spoke about Bankman-Fried’s charges. He claimed that the FTX founder had “knowingly” defrauded investors and customers. He also accused Bankman-Fried, of secretly and illegally siphoning customer funds from FTX for Alameda operations.

Damian ended his statement by warning other bad actors working in the cryptocurrency industry that “this is one of America’s biggest financial frauds, and we aren’t done.”

Did Crypto Failed?

Charles Hoskinson, Cardano founder, said that the problems in 2022 weren’t due to crypto’s failure but were caused by poorly designed and centralized infrastructures run by exploitative or incompetent people.

Hoskinson stated that “Crypto didn’t fail,” People failed. People who are in positions of trust. As much as we may believe in the principles behind cryptocurrency, it was all about people trusting others and putting their money into centralized exchanges.

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