Crypto in 2022: Russia’s invasion, ETH merger, collapse of Terra and FTX, aftermath

Kaiko, the provider of real-time and historical cryptocurrency trade data, order books, and aggregated prices, has published a special end-of-year edition of its Data Debrief.

In it, the Kaiko Research team focused on the ten defining market events for crypto in 2022, which includes the new crypto activity amid Russia’s invasion of Ukraine, the Terra collapse, the crypto credit crisis, Binance’s dominance, the evolution of Uniswap, the Ethereum merger, the collapse of FTX and its aftermath, and macro.

The report analyzed each defining each occurrence and added commentary/predictions for them. We quote the latter below:

• 1. Russia’s invasion causes increase in crypto activity: “Crypto proved that it can be leveraged in times of extreme uncertainty, particularly stablecoins, allowing citizens an escape from volatile currencies. This conflict also demonstrated how quickly sanctions and restrictions enforced by global payment networks can curb unwanted crypto usage.
• 2. The Terra collapse destroys billions in value: “It now goes without saying that if yields seem too good to be true they probably are. The Terra collapse was also a great example of the importance of on-chain data when investigating warning signs of a token or project’s health. In 2023, pay attention to what happens on DeFi protocols!
• 3. The crypto credit crisis topples illiquid lenders: “stETH is a relatively small crypto token, but played an outsized role in the collapse of Celsius and wider crypto credit crunch. This scenario demonstrates the risks involved when centralized platforms invest client funds in high-risk DeFi protocols. Again, if yields seem too good to be true (in this context, on centralized platforms), they probably are. More broadly, the crypto credit crunch continues to play out today and could have a bearish impact on markets should bankrupt lenders be forced to liquidate their crypto holdings in the new year.”
• 4. Binance becomes even more dominant: “Despite experiencing a record $6bn in outflows following fears around the soundness of its reserves in December, Binance continues dominating spot trading. However, as the world’s largest exchange, it faces growing scrutiny from both regulators and customers, which could reach a boiling point in 2023. Traders are increasingly valuing transparency, and there could very well be a shift towards more regulated centralized platforms.”
• 5. Uniswap evolves into a formidable CEX competitor: “Uniswap’s volume has been impressive throughout this bear market. Will governance turn on the long-awaited fee switch to divert some revenue to token holders? How will DEXs be affected by regulations? And can any DEX make a dent in Uniswap V3’s dominance? Overall, cryptocurrency market structure continues to be dominated by centralized exchanges with Ethereum-based DEX volumes still magnitudes lower compared with their centralized peers. However, DEXs have shown remarkable resilience to the current market turmoil and innovations continue to make them more competitive with CEXs, especially following the collapse of FTX.”
• 6. Ethereum merged, and nothing bad happened: “While ETH’s price fell after the Merge, in the long run, the upgrade bodes well for the future of the network as it paves the way for future scalability improvements. However, it has also been controversial, as nearly 70% of blocks are OFAC compliant, boosting concerns about censorship that will continue in 2023. While there is growing anticipation (and some concern) around a deadline for ETH staking withdrawals and the network’s scaling roadmap, Layer 2 scaling solutions built on top of Ethereum have gained significant traction and will likely continue to do so in the new year (we discuss more on L2s here).”
• 7. The FTX collapse revealed a scam of epic proportions: “In hindsight, it seems obvious that FTT was a massive vulnerability, as a token with almost no utility, liquidity, or demand. To prevent the next FTX collapse, the industry must question all business models and balance sheets and demand transparency from the centralized venues they use.”
• 8. Liquidity dries up in a post-Alameda world: “Hopefully the drop in liquidity is temporary, and there are already signs market makers are re-entering markets and re-gaining confidence. However, it is likely that market makers will be more careful choosing the exchanges on which they hold funds, perhaps boosting the market share of more regulated exchanges.”
• 9. Asset valuations come into question post-FTX: “The industry must begin to recognize that market cap and fully diluted valuation are theoretical numbers that do not accurately reflect the value of a token, especially if a large holder is looking to cash out. A return of altcoin liquidity would be beneficial for the market, as well as DeFi protocols that rely on price oracles for less liquid tokens.”
• 10. The year of macro: “Global recession worries and tightening liquidity will continue to weigh on risk assets especially as quantitative tightening speeds up. However, the U.S. Fed and other central banks are widely expected to slow down the pace of rate hikes next year, perhaps providing respite for risk assets.”