LUNA Wasn’t the First: Top 5 Crypto Projects That Suddently Collapsed

LUNA Wasn’t the First: Top 5 Crypto Projects That Suddently Collapsed

On May 2, a death spiral began in the Terra blockchain. The value of the LUNA token fell from $80 to $0.0002 in two weeks, and investors lost $42 billion. Dramatic as it was, it hardly was the first time something like that has happened in the blockchain industry.

As Bitcoin and Ethereum recover, Tezos regained 8.5% of its value in a week. As it’s happening, let’s look back at 5 blockchain projects that lost more than 90% of their value due to creators’ mistakes or scam.

What All the Fails Have in Common

Opponents of cryptocurrencies constantly repeat that tokens are not backed by anything. That is not strictly true: the value of tokens is determined by how much investors believe in a project’s future and its relevance in the digital economy. The more people believe in the coin, the higher its price will rise.

Tokens we’ll discuss below fell and caused panic because investors have lost faith in them. The reasons varied: outright scam, hacking, founder toxicity, direct problems with the regulator, or just a slight hint thereof.

We believe Tezos in its current state is immune to such collapses. We believe in Tezos as we do in a family Toyota: even though the speedometer doesn’t even have 300 kmph, the car will definitely get us where we need to go and protect us from the rain.

OneCoin: Minus $4 Billion

OneCoin appeared in 2014. Its creators claimed it was totally analogous to bitcoin, but hid the fact that balances and transaction records were stored in a centralized database. Although the OneCoin website operated both a wallet and a semblance of a P2P exchange, the project itself did not have a blockchain.

The company made money by selling packages of “tokens,” which gave it the right to mine more “tokens.” The packages cost between €100,000 and €118,000. In addition to the “tokens,” buyers received educational materials about blockchain, and the right to receive a percentage of the sale of the packages in their own name.

Until 2016, people invested more than $4 billion in OneCoin. In 2017, the internal exchanger closed and investors lost the opportunity to sell non-existent tokens. Ruzha Ignatova, the founder of the scam, disappeared along with the money.

BitConnect: Minus $3 Billion

The creators of BitConnect positioned it as a platform for passive income. The user lends funds, the bots use them in trading and bring up to 40% gain per month, that is, up to 5670% per annum.

BitConnect only accepted deposits in its own BCC token. Aggressive marketing contributed to demand and price growth: since the project’s launch in 2017, the value of BCC has risen from $0.17 to $450. The capitalization at its peak reached $3 billion.

In late 2017, the British Registrar of Companies, the Texas Securities Exchange Council, and the North Carolina Securities Division declared BitConnect’s activities a potential fraud. On January 17, 2018, the BitConnect website shut down, investors began selling BCC, and the price of the token dropped to nearly zero. Now BCC is not tradable anywhere.

NEM: Minus $15 Billion

NEM (New Economic Movement) was launched in 2015. The main feature of the cryptocurrency is the Proof of Importance consensus algorithm. The chance of mining the next block depended on the user’s activity, such as the number of transactions and the amount of funds sent over a period of time.

In 2017, NEM’s native token, XEM, even made it to the top 10 of CoinMarketCap.

But in January 2017, when XEM cost $1.8, the Coincheck exchange announced there was a theft of 500 million tokens worth about $700 million. After that, the price of XEM plummeted to $0.05.

The NEM community did not dare to hold a hardfork and return the network to the pre-theft status, as Ethereum did after the DAO hack. The faith in NEM waned, and the coin’s capitalization dropped from $16 billion at its peak to $500 million at the time of publication.

CEL: Minus $1,5 Billion

Celsius is a lending protocol for passive income in stabelcoins and tokens from popular projects. The user deposits funds, the platform lends them to institutions at an interest rate, and the user makes a profit. Profitability can be increased if one agrees to payments in CEL instead of the original asset. For example, a deposit in GUSD with payouts in GUSD yields 7.1% annually, but with payouts in CEL, it yields 9.32%.

In the fall of 2021, the value of CEL was holding around $6. At the same time, Celsius started having problems with regulators: the user agreement did not include warnings about the risks of losing investments due to key theft, blockchain outages, or cryptocurrency market volatility. The platform updated the document, but also added another potential problem, a regulatory risk.

Users became alerted thanks to these lines, and the value of CEL gradually fell to $2. After the fall of LUNA, the rate of CEL dropped even lower, to $0.76. As a result, investors potentially lost $1.5 billion.

Bitcoin Satoshi Vision: Minus $2 Billion

Bitcoin is slow: block time is 10 minutes, block volume is 1 MB, and throughput is up to 7 transactions per second. In 2017, part of the community, led by Roger Wehr, wanted to speed it up by increasing the block volume to 8 MB. Most did not support this idea, and it ended up in a hardfork known as Bitcoin Cash (BCH). However, Craig Wright thought that was not enough, and in late 2018 he made a hardfork of BCH with unlimited block volume, now called Bitcoin Satoshi’s Vision (BSV).

The creation of BSV and the scandals surrounding the hardforks shook the crypto market. In November 2018, Bitcoin price broke through the support at $6,000 and stayed at around $3,500 for almost six months. It was not until April 2019 that the market was able to recover.

Over the next few years, Bitcoin Satoshi’s Vision failed to gain any traction. The exchanges Kraken, Okcoin, Binance, Coinbase and ShapeShift called the token toxic and removed trading pairs with BSV. Shortly afterward, the network suffered a 51% attack and several cases of double-spending. While the attack caused no direct damage, the value of the token fell from a peak of $451 to $50. The investors’ losses are estimated at $2 billion.

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