Crypto Crash Rewrites: The Villains and Their New Narratives

The year 2022 delivered two devastating blows to the crypto ecosystem, each orchestrated by a different bad actor.

May: Terraform Labs and UST

• Event: The algorithmic stablecoin UST abandoned its $1 peg, spiraling into hyperinflation.
• Impact: Roughly $40 billion in market value was wiped out, pushing firms such as Voyager Digital and BlockFi into bankruptcy.

November: FTX

• Event: The exchange halted withdrawals and filed for bankruptcy.
• Allegations: Customer funds were siphoned to cover losses at Alameda Research, finance real‑estate deals, and make political donations.
• Market Reaction: Bitcoin fell below $20 000 amid the chaos, and links between UST’s collapse and FTX’s failure began to emerge.

Judicial Actions

• Do Kwon (Terraform)
• Pleaded guilty to fraud and manipulation.

• Received a 15‑year sentence.

• Sam Bankman‑Fried (FTX)
• Convicted on seven counts, from wire fraud to money laundering.
• Sentenced to 25 years and ordered to forfeit $11 billion.

Post‑Prison Claims

• Bankman‑Fried’s Narrative
• Asserts FTX was never insolvent; it had more assets than debts.
• Claims the platform could have paid customers in crypto and that bankruptcy lawyers rushed the process, costing over $1 billion in fees.
• Published a thread titled “10 Myths About Me & FTX” and requested former President Trump for a pardon.

• Expert Counterpoint
• If FTX could cover withdrawals, it would not have frozen them.
• A crypto exchange must hold customers’ money exactly as they expect it; FTX failed to do so.
• The core issue remains: customer funds were misused without permission.

Terraform’s Legal Battle

• Plaintiff: Terraform’s liquidation team.
• Defendant: Jane Street trading firm.
• Allegations: Terraform insiders shared non‑public information with Jane Street, which then pulled large amounts of UST from the Curve3 pool immediately after a secret Terraform withdrawal.
• Critics’ View: The real fault lies in UST’s design—functioning like a Ponzi scheme by promising high yields funded by new deposits. Insider trading may have accelerated the crash but did not cause it.

2025: The New Crypto Landscape

• Bitcoin has rebounded to near $125 k, while other cryptocurrencies lag behind.
• Altcoins now trail Bitcoin more than in previous bull runs.
• Many top projects rely on centralized stablecoins or tech stacks, shifting the conversation from open protocols to traditional fintech.
• Meta plans to add stablecoin support later this year, following a stalled attempt in 2019.

The industry now resembles traditional fintech more than the open‑protocol promise it once held.