The crypto sector has grown substantially since the early days. Projects are more trustworthy, exchanges are more resilient, and its participants are more open-minded.
That being said, even with all the growth that we’ve seen, there have still been horrific moments that have caused millions to lose money and face terrible truths. Pump-and-dump projects, hacked protocols, ridiculous yields, straight-up-scam tokens–we’ve seen it all in these past two years.
This Halloween, let’s remember, in no particular order, the scariest incidents of the last crypto bull cycle.
1. The Terra Fiasco
No scary crypto incident list could ever be complete without this year’s Terra debacle. A once attractive project with a thriving ecosystem and the charismatic Do Kwon at its helm, the Terra project rose to prominence as quickly as it receded, leaving hundreds of thousands of investors in shambles in the process.
Unfortunately, it was largely one component of the Terra ecosystem that proved to be the crux of its inevitable downfall: algorithmic stablecoin UST. UST was linked to LUNA, the price of which was determined by the market. While UST’s status as always being equal to 1 LUNA generated arbitrage opportunities, it also left the entire ecosystem in danger of exploitation.
And exploitation is exactly what happened. In early May, 2022, unknown whales began swapping hundreds of millions of UST for USDC on Terra’s lending protocol, Anchor, where investors staked their UST in order to earn juicy 20% yields. This led to the gradual depegging of UST, and while Kwon tried to “deploy more capital” through Luna Foundation Guard (LFG) to protect the peg, it was already too late—the snowball was already rolling.
UST briefly managed to repeg but eventually went into free fall, and nothing Kwon threw at it could abate the death spiral. Due to their inextricable link, Terra’s demise meant that the price of LUNA also crashed brutally. It was so bad that Terra Labs opted to halt the blockchain altogether, but that, of course, yielded no better result.
Within the span of just a few days, Terra went from a $40 billion market cap and ranking among the top 10 cryptocurrencies, to being a failed project that lost everything–its reputation, developers, capital, ecosystem, and most egregiously, its users’ funds. The implosion also had a knock on effect, as Three Arrows Capital, the now infamous crypto hedge fund, went bust due to its heavy exposure to the Terra ecosystem.
Naturally, no failing Ponzi scheme, as many have since dubbed it, is complete without a charismatic, controversial persona steering the sinking ship. Founder and CEO Do Kwon remained confident and arrogant throughout the debacle, refusing to take responsibility for events. There have even been some reports that Kwon may have known what was going to happen, or may even have been involved in some capacity.
In any case, Kwon went missing soon after the project crashed, and though he occasionally resurfaces on social media, he has yet to admit any fault. The once mighty leader of the Terra ecosystem is now a fugitive of South Korean law enforcement and even Interpol, though he maintains that he is not in hiding. Officials have also voided Kwon’s passport.
It’s important to note that the Terra collapse was far from a surprise. In fact, multiple people had criticized the algorithmic stablecoin mechanism and some even bet millions that, sooner or later, it’s going to collapse.
The tale of Terra Luna is not a fun one, and while it will continue to scare crypto enthusiasts around a campfire for years to come, the reality is that it affected hundreds of thousands of people, with some even taking their own lives after losing their life savings. Let it be a lesson to current and upcoming crypto generations: if it looks too good to be true, it probably is.
2. Celsius Going Bust
The Terra fiasco, and the intensified downturn in the broader crypto market that followed, greatly affected centralized crypto lenders. One of these unfortunates was Celsius, a now-defunct crypto lender that was once worth billions of dollars.
Celsius was a true rockstar in the crypto lending market. At its peak, Celsius had more than $8 billion in loans to clients, almost $12 billion in assets under management, and 1.7 million daily customers. The firm built its reputation on the back of offering yields of as much as 17% on deposited crypto assets like stablecoins—an APY unlike any offered elsewhere.
The story of Celsius’ decline is one of somewhat irony, as the firm marketed itself as the only safe place from the evil banks that had proven their instability. Alex Mashinsky, the company’s former CEO and its most vocal ambassador, notedly used to wear a t-shirt that read: “Banks are not your friends”.
The Celsius fairy tale turned sour as the market went into decline in the summer of 2022. The lender was forced to halt withdrawals in June as customers started fleeing the platform en-masse amid the rampant market turmoil. It quickly became apparent that Celsius was facing serious liquidity issues.
Just one month later, Celsius filed for Chapter 11 bankruptcy, which revealed that the firm was $5 billion in debt with a $1.2 billion hole in its balance sheet. Mashinsky left the company in September, claiming that he was becoming a “distraction” to the troubled crypto lender as it fights to survive, and lamenting that he was “very sorry” for what the community is going through.
And the community was indeed in trouble. Those who failed to pull their assets from Celsius before it suspended withdrawals have yet to see a resolution; indeed it’s unclear if they’ll ever get their funds back. As if that wasn’t enough for the embattled lender, Celsius recently published a document over 14,500 pages long detailing customers’ full names, amounts bought and swapped, and more.
As expected, Celsius has been inundated with lawsuits. Reports further suggest that U.S. federal institutions like the CFTC, the SEC, and the FTC are also probing the bankrupt lender, while others allege that Celsius has been insolvent for a long time.
Whatever the case, the Celsius saga deserves a place in the crypto hall of shame.
3. Mango Markets Manipulation
While the Mango Markets attack wasn’t carried out during the most recent bull market, it deserves a spotlight because of the sheer quantity stolen and the clever manipulation that took place.
The saga began on October 11th, 2022, when the developers of Solana-based decentralized finance (DeFi) protocol Mango Markets started to notice unnatural changes in its collateral value. In a matter of minutes, Mango’s treasury was completely drained of all equity, totaling a hefty sum of $114 million.
It was revealed that an anonymous exploiter had manipulated a spike in Mango’s collateral, which had allowed them to take out massive loans of the funds in the Mango treasury. The aftermath was that no Mango user could withdraw their funds because, in essence, there were simply no funds left. It seemed as if $114 million had simply vanished into thin air.
It was at that point that the all too familiar story took an unexpected turn. Just hours after the exploit, the attacker themselves submitted a governance proposal to the Mango DAO which stated that, if approved, they would return $67 million worth of the stolen funds back to the treasury. However, it also included the stipulation that the protocol must use its remaining $70 million to pay back all users without bad debt, or any remaining debt.
Capping things off was the most wicked part of the whole event–the proposal stated that, if the above criteria was met and the proposal passed, the exploiter would face no criminal charges, and would pocket $47 million as a bounty reward no less!
As you might expect, the proposal passed, and the manipulator indeed proceeded to return $67 million, taking home a cool $47 million—the largest bounty in crypto history. But that’s not even where the story ends.
Following the approval of the proposal, the exploiter revealed himself to the world on Twitter as Avraham Eisenberg, who claimed that his actions were justifiable, and a “highly profitable strategy” that was “legal”. This explanation met mixed reactions from users, as some applauded Eisenberg for exposing the vulnerable DeFi protocol, while others condemned him, insisting that it was only a matter of time before he went to jail.
Eisenberg later took to Twitter to boast about his other adventures in the DeFi space, including the creation of meme token “Mango Inu”, a clear salt-in-the-wounds jab at the injured protocol, from which he also stole $100,000 from those who had invested. While it’s unclear if Eisenberg will face any consequences, one thing is for sure: the events of the Mango Markets saga have become one of the most interesting, and indeed costly crypto exploits in recent memory.
4. EthereumMax Pump-and-Dump
Doesn’t the name EthereumMax instill confidence in you as an investor? Wait, it doesn’t? What if you were told that reality TV star Kim Kardashian, legendary boxer Floyd Mayweather, and basketball Hall of Famer Paul Pierce endorsed it?
Those were the questions posed to many excited crypto enthusiasts looking to get into the game, and where the story of how they fell victim to one of the more interesting and hurtful pump and dumps in crypto history began.
The EthereumMax came into the spotlight after an Instagram post made by Kim Kardashian. In July 2021, the celebrity posted a story to her 331 million followers that included a link to the EthereumMax website, where potential investors could purchase EMAX tokens.
The EMAX token, just as any other scam token, was advertised for its extensive utility. In this particular instance, the project claimed that EMAX tokens could be used to purchase pay-per-view tickets. It came as little surprise then that the token gained 116,000% in value within just one week of Kardashian’s promotion. Then, as has been seen all too often throughout crypto’s existance, the project underwent a rug pull almost immediately, leaving thousands empty handed.
Kardashian, and undoubtedly, her legal team, tried to distance herself from the project. When the inevitable lawsuits came, the model fought to avoid them, and it seemed at one point that she may actually get away with it—however, the U.S. Securities and Exchange Commission (SEC) would not be deterred.
Just a month ago, the regulatory agency announced charges against Kardashian for illegally touting the EMAX token without disclosing that it had been a sponsored promotion to the tune of $250,000. The influencer agreed to pay $1.26 million in fines, and has pledged not to promote any crypto project for three years.
While going after celebrities may seem a pointless game to some, and while that would be true in some cases, the SEC set out to send a clear message–misleading celebrity promotion has no place in crypto, nor in any other market for that matter.
In the meantime, EthereumMax Co-Founders Steve Gentile and Giovanni Perone, along with many others involved, are facing multiple lawsuits, but have yet to be charged.
5. The Squid Game Token Rug Pull
The Squid Game token rug pull is one to remember. Although the project seemed to be a clear scam from the get-go, it didn’t stop investors from piling (and eventually losing) millions of dollars into it, drunk as they were on the recent hype of the show.
Inspired by, but not affiliated with at-the-time recently released Netflix hit show Squid Game, $SQUID invited users to compete in minigames similar to those in the original series, where winners could walk away with juicy rewards—at least, that’s what the project’s whitepaper claimed.
In order to be eligible to play, potential players had to first pay a registration fee in SQUID. People were so interested in the project that, within just a few days after the launch, the token soared by more than 23,000,000%, reaching a high of just over $2,860, pumping the entry fee up to nearly $500,000.
And of course, that’s when the shenanigans started. As SQUID broke all-time high after all-time high, entrants started reporting being unable to redeem their proceeds or sell their tokens. The final blow came days later, when the developers of the project left the following message in their Telegram group:
“Squid Game Dev does not want to continue running the project as we are depressed from the scammers and is overwhelmed with stress. We have to remove all the restrictions and the transaction rules of Squid Game. Squid Game will enter a new stage of community autonomy.
Sorry again for any inconvenience been made for you. If any strange starts coming out of it, ignore it. Thanks!”
The value of the SQUID token then plummeted to almost $0 as the scammers unloaded millions of tokens all at once.
In total, an approximate $3 million was stolen, as Tornado Cash, an Ethereum-based crypto mixer that has recently faced sanctions from the U.S. government, was used to cover their footsteps. Though Binance, the world’s largest crypto exchange, vowed to try and make the developers of the token pay up, they proved unable to trace them.
The moment scammers complete a rug pull is certainly a thing to behold.
6. Bitcoin and Ethereum Flash Crashes
While 2021 was largely a year of “only up” for crypto, there were a few instances where Bitcoin and Ethereum flash crashed so hard it instilled fear into even the most hardcore investors.
Small to medium flash crashes are seen quite commonly, but large fluctuations in which prices fall 50% or more in an instant, are a rare, hair-raising phenomenon. That’s exactly what happened to Bitcoin October of last year, as the spooky month lived up to its name.
Investors were dumbfounded when they found out that BTC/USD had crashed more than 87% on Binance.US, and yet nowhere else. The price of Bitcoin had suddenly plunged from around $65,000 to $8,200 and back again as if nothing had even happened. Binance.US later explained that the sell-off was caused by a bug in the algorithms of one of their institutional investors.
But Bitcoin wasn’t the only major cryptocurrency to experience a flash crash in 2021. A similar crash had taken place just a few months prior on Kraken, when the price of Ether suddenly declined 50% from $1,600, down to around $700, before immediately shooting back up.
Kraken’s then-CEO Jesse Powell explained that the crash was caused by a single whale who dumped a big bag of the coin, rather than a trading-engine malfunction.
In both cases, happy were the ones that had orders set up, and sad were those whose stop losses had triggered.
The last crypto bull run saw a plethora of reasons to be both elated and terrified. While the market broke through all-time high after all-time high, there were some who fell victim to the various traps set up by the bull market each cycle.
From unsustainably high yields, pump-and-dump projects, straight-up scam tokens, or other less-than-thrilling crypto incidents, the crypto space had it all.
Let Halloween be the time we look back at the industry’s mistakes from the last bull cycle and move forward as better investors and participants in the Web 3.0 sector.