Moralis Research 2022 Recap

Welcome back everybody. It’s been another exciting week in crypto and we’re pleased to bring you the next edition of The Blockchain Review. It’s the end of the year and time to reflect on what’s been learnt from all the trials and tribulations we’ve experienced in the industry throughout 2022.

As the majority of digital assets have decreased in value this year there’ve been key events contributing to this along the way. The downfall of Terra Luna and the algorithmic stablecoin USTC was the first significant project to fail. It caught many thousands of retail participants but it was the big boys who had placed fund money, customer money or borrowed money into the seemingly irresistible 17% APR ‘available’ on Anchor that caused the first domino of many.

Three Arrows Capital was then the first fund to fail, with their high profile exposure to Terra and USTC. They were once a brand name venture capital fund desired by many projects to assist with launching their projects. They turned out to be totally overleveraged and had been making increasingly risky bets.

Then came the collapse of CeFi with Celsius, BlockFi and Voyager all going into bankruptcy. They’d been offering high APR on both volatile assets and stablecoins with claims of a buoyant borrowing and lending market. These rates proved to be unsustainable and the risks unquantifiable. Loans were meant to be overcollateralized but this wasn’t always the case when lending to other large players and corners were cut. 

Some CeFi were also engaging in activities away from their core lending business and began taking risks in nascent DeFi or mining enterprises. Hacks happened, losses came and balance sheets dwindled. The highest profile was of course when the death spiral happened on Luna/USTC. But there were many other smaller losses which also left holes in balance sheets.

Billions disappeared and billions defaulted on loans.

The spiral down continued in the overall market. Everytime a large player went, confidence in the market dwindled. Then came SBF and FTX with their narrative of a ‘knight in shining armor’ declaring they had billions of capital on the sidelines ready to make acquisitions.

This turned out to be the biggest farce of them all. With the billions set aside some of it had been customer deposits, rather than actual profits. Or tokens which they had created being used in deals, or as liquidity to borrow against. The closely affiliated VC, Alameda Research was a key part in this too. They’d been given unlimited credit to play with and had access to data on users’ positions and liquidation points on FTX. This meant an extremely unfair trading environment. 

So what are the stand out lessons? To be extremely careful when delegating responsibility of your funds to any centralized exchange or CeFi provider. The prevalence of greed, which anybody can experience at any time, was rampant throughout the industry and even the so called trusted brands clearly weren’t immune to excessive risk taking and engaging in unfair practices.

The other is to be extremely careful with leverage and the resulting spirals which can happen especially when collateral is correlated. Much of this year has been the unwinding of excessive leverage by the large players. But this can happen to anybody, at any level. 

It’s time to get back to basics throughout 2023. Anybody who sticks around now will then have the lessons of the past to form their wisdom of the future. A lot of the newcomers who came during the bull market have now disappeared again. But we’ve got to do our best to get them back once they understand the true potential of crypto and primarily decentralization.

We’ll always provide you with our research to help with your education. We’ll keep close track of the main developments and evolution of the niches in blockchain so that you get the best of the new knowledge. When you’ve finished reading your report then please remember to fill out the feedback form, your research is valued and we’re always open to suggestions.