The Perfect Storm: How the 2022 Crypto Collapse Unfolded from Luna to FTX

　　The cryptocurrency lending and wealth management sector witnessed a dramatic rise and fall in recent years, with Babel Finance emerging as a key player before its eventual collapse. This article examines the events leading to the 2022 crypto crisis through the lens of industry insiders, revealing the complex interplay of market forces, institutional strategies, and regulatory challenges.

　　The Rise of Centralized Lending:

　　At its peak in March-April 2021, Babel Finance managed approximately $7 billion in assets, coinciding with Bitcoin's surge to $64,000. The market was driven by Coinbase's IPO and funding fee arbitrage opportunities. Centralized lending institutions, led by Genesis with $13.8 billion in assets under management, dominated the space, serving two primary client groups:

　　1. Asian crypto miners seeking liquidity for their BTC holdings

　　2. U.S. institutional investors engaged in GBTC arbitrage

　　The GBTC arbitrage mechanism, which involved borrowing BTC, creating GBTC shares, and hedging through spot market sales, became a cornerstone of institutional crypto lending.

　　The Evolution of Babel Finance:

　　Babel's journey can be divided into three distinct phases:

　　1. Pure Lending (2018-2020):

　　BTC-collateralized loans for miners

　　Focused on stablecoin lending (USDT, USDC)

　　2. Wealth Management Expansion (2020-2021):

　　Introduction of BTC/ETH-denominated products

　　Implementation of options-based structured products

　　3. Proprietary Trading and Leverage (2021-2022):

　　Blurring of lines between lending, asset management, and trading

　　Aggressive strategies fueled by BTC price appreciation

　　The Terra/Luna Catalyst:

　　The collapse of Terra/Luna in May 2022 marked a turning point, wiping out $400-500 billion in base currency and triggering a $600 billion market capitalization loss. Alameda Research, FTX's market-making arm, became the primary absorber of this liquidity crisis, with estimated losses between $10-20 billion.

　　The Domino Effect:

　　The crisis unfolded through a series of interconnected events:

　　1. Three Arrows Capital (3AC) and Babel Finance's simultaneous collapse

　　2. Margin calls and panic spreading across the industry

　　3. FTX's attempt to rescue struggling institutions

　　4. Genesis's eventual downfall as the largest lending counterparty

　　Lessons Learned and Industry Evolution:

　　The 2022 crisis prompted significant changes in the crypto industry:

　　1. Increased adoption of custody solutions

　　2. Separation of exchange and lending operations

　　3. Enhanced risk management practices

　　4. Improved institutional and investor awareness

　　The Aftermath:

　　The collapse revealed critical vulnerabilities in the crypto ecosystem:

　　1. Over-reliance on centralized lending institutions

　　2. Lack of regulatory oversight and safeguards

　　3. Interconnectedness of major players

　　4. Limited government intervention capabilities

　　As the industry continues to evolve, the lessons from the 2022 crisis serve as a stark reminder of the importance of risk management, transparency, and regulatory compliance in the rapidly changing world of cryptocurrency finance.