The crypto bubble that inflated through 2021 burst in 2022 with two defining failures.
In May, Terraform Labs’ algorithmic stablecoin UST lost its $1 peg, eventually leading to hyperinflation of the system’s underlying crypto collateral and wiping out an estimated $40 billion in crypto market value. The contagion triggered bankruptcies at a variety of crypto institutions, including Voyager Digital and BlockFi.
Months later, in November, crypto exchange giant FTX halted withdrawals and filed for bankruptcy. Customer funds had allegedly been diverted without consent to cover losses at sister trading firm Alameda Research, fund real estate, political donations, and other unapproved uses. The amount of money that was diverted is somewhat disputed, but what’s clear is that customers were unable to receive requested crypto withdrawals. Bitcoin bottomed below $20,000 amid the broader deleveraging, and reports later pointed to ties between the two crypto disasters.
Justice delivered partial accountability. Do Kwon, Terraform Labs co-founder, pleaded guilty to fraud and manipulation charges tied to misleading investors about UST’s stability. He received a 15-year prison sentence this past December, with victims testifying to the widespread destruction. Sam Bankman-Fried was convicted on seven counts, including wire fraud, securities fraud, and money laundering for the FTX misconduct. A judge sentenced him to 25 years in March 2024 and ordered $11 billion in forfeiture.
Both Bankman-Fried and lawyers associated with Terraform Labs are now working to recast their respective roles in the collapses.
Was FTX Actually Insolvent?
From prison, Bankman-Fried has posted on X claiming FTX was never technically insolvent. In a recent “10 Myths About Me & FTX” thread, he states the platform held more assets than liabilities, could have repaid customers in kind, and is now delivering 119-143% recoveries. He blames bankruptcy professionals for rushing a Chapter 11 filing, charging over $1 billion in fees, and dismantling the estate instead of allowing an orderly wind-down.
Most crypto industry insiders, where Bankman-Fried is viewed as the ultimate villain, dismiss this general argument. If assets were truly sufficient, withdrawals would not have been frozen. New York University Stern School of Business Adjunct Professor Austin Campbell noted that solvency for a crypto exchange means holding customer assets in the exact form and availability they expect, adding, “FTX did not have that. They were insolvent.” Galaxy Head of Firmwide Research Alex Thorn added that diverting deposits into illiquid bets against customers’ wishes amounts to theft, making the platform insolvent the moment redemptions failed.
This is false.
The definition of solvent for an exchange is you have the customer assets, in the form the customers held them, which you can return to customers at the time they want them.
FTX did not have that.
They were insolvent.
"Hey I have other forms of money that later… https://t.co/DFConcUrhJ
— Austin Campbell (@austincampbell) February 20, 2026
The bankruptcy process may indeed have carried its own inefficiencies, with creditors flagging excessive legal fees that neared $1 billion and rushed asset sales. However, at the end of the day, misusing customer deposits without approval was still the original sin.
Bankman-Fried has also used his public posts to court a pardon from President Trump. The White House told Fortune this week that no pardon is in the works or planned.
Terraform Labs Blames Insider Traders Instead of Their Broken Stablecoin Model
In the matter of the other major collapse of 2022, Terraform Labs’ liquidation administrator is now suing trading firm Jane Street, alleging insider trading accelerated the UST depeg and LUNA disaster. However, while opportunistic or informed trading may have occurred as the run began, the fundamental issue was the broken stablecoin design. As the pseudonymous crypto advisor and strategist Hasu put it:
Let’s be extremely clear. UST failed because it was a ponzi scheme. It was a criminal enterprise that lured depositors with promise of high yield, paid from the deposits of new entrants. There is no possible universe where it didn’t go broke.
According to the new complaint, Jane Street allegedly obtained non-public information from Terraform insiders through private communication channels established by its employee and former Terraform member Bryce Pratt, who maintained contact with former colleagues, including a software engineer and the head of business development. A specific allegation involves May 7, 2022, when Terraform Labs withdrew 150 million UST from the Curve3pool without any public announcement; within 10 minutes, a wallet linked to Jane Street withdrew an additional 85 million UST from the same pool.
Bitcoin eventually recovered from the 2022 lows and reached new all-time highs near $125,000 in October 2025. But the rest of the crypto market has not followed suit as strongly as in past cycles, where altcoins have routinely outperformed bitcoin by wide margins during bull runs. For example, Ethereum, which was heavily marketed last cycle for DeFi dominance and its shift toward “ultrasound money,” currently trades far lower against bitcoin when compared to previous cycles, underscoring a growing divide between bitcoin and more speculative blockchain use cases.
A few crypto names have outperformed recently, but most exhibit heavy centralization in their associated tech stacks, reliance on centralized stablecoins, or both. Indeed, conversation around non-Bitcoin crypto increasingly centers on stablecoins, which in many ways operate more like centralized fintech products than open protocols. Earlier this week, it was revealed that Meta plans to implement stablecoin integration in their products later this year. Notably, the company previously attempted to create its own digital currency back in 2019 before regulators applied pressure and slowed things down.
Bitcoin has faced its own pressure recently, dropping roughly 50% from the October peak. The drop began with an October 10th deleveraging event driven more by smaller altcoins than bitcoin itself, echoing the post-Terra unwind, according to CNBC. Narratives questioning bitcoin’s “digital gold” status have also resurfaced as physical gold outperformed amid geopolitical strains, including tensions over Greenland. That said, Bitcoin encountered similar doubts after its March 2020 crash at the start of COVID before eventually experiencing another boom during the pandemic.
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