Crypto contagion: how one failure spreads across lenders and exchanges

What is crypto contagion and why does it differ from a price fall?

A price fall hurts every holder in proportion to what they own. Contagion hurts through contracts: a borrower cannot repay, a lender cannot honour withdrawals, an exchange cannot return deposits. The loss travels along the links between firms, so a holder who owns nothing of the first failure can still lose money through a lender that did.

That is why contagion deserves its own page. It follows the map of who lent to whom, which differs from the map of who holds which token. The 2022 chain below shows the mechanism in order: a stablecoin failure, a fund that could not meet margin calls, and a lender that paused withdrawals.

How did the Terra collapse start a crypto contagion?

On 9 May 2022 the TerraUSD stablecoin, called UST, began to break its peg, and over the next week its price plunged to 10 cents. UST was not backed by US dollars. It relied on a burn and mint design with a second token, LUNA, meant to absorb volatility. As holders converted UST into LUNA, supply rose and the price of LUNA collapsed.

The account on Wikipedia says the collapse wiped out almost $45 billion in market capitalization within a week, and that LUNA fell to virtually zero from an all-time high of $119.51. On 13 May 2022 Terraform Labs temporarily halted the Terra blockchain. This was the first link: a design that failed, and holders who had treated a stablecoin as cash.

How did Three Arrows Capital pass its losses on in the crypto contagion?

Three Arrows Capital invested approximately $200 million in LUNA tokens in February 2022, and LUNA collapsed to near zero in May 2022. On 16 June 2022 the Financial Times reported that the firm had failed to meet its margin calls. A British Virgin Islands court ordered its liquidation on 27 June 2022, and the firm filed for Chapter 15 bankruptcy on 2 July 2022.

The loss moved to lenders. The firm defaulted on a Bitcoin and USD Coin loan from Voyager Digital worth more than $665 million, and Voyager’s bankruptcy is partly attributed to that collapse. Genesis Trading incurred substantial losses from loans to Three Arrows, and its parent, Digital Currency Group, assumed certain related liabilities.

What did Celsius show about contagion through lenders?

Celsius paused all customer withdrawals on 13 June 2022, citing extreme market conditions, and filed for Chapter 11 bankruptcy on 13 July 2022, one month later. In June 2022 the company said it had 1.7 million customers. As of May 2022 it reported almost $12 billion in assets under management and had lent out $8 billion to clients.

The account notes that a company blog post of 7 June denied claims that Celsius sustained significant losses as a result of the Luna collapse. This page draws no link between Celsius and Three Arrows, since the sources consulted draw none. The documented lesson is simpler: a lender with large loans out and customers who can withdraw on demand faces a run when confidence drops.

Which channels carry crypto contagion between firms?

4 channels recur in the 2022 chain. Collateral: a borrower posts a token that loses value, and the lender calls margin. Lending: a borrower defaults, and the lender cannot repay its own depositors. Deposits: customers withdraw at once, and the venue pauses. Confidence: firms that never touched the failed asset still lose funding because counterparties cut limits.

Each channel needs a link that exists in a contract or a balance sheet. This makes contagion measurable in advance. A firm can list its lenders, its borrowers, its collateral, and its largest depositors, then ask what happens to each if one of them fails. The questions are simple, and the answers show where a shock would travel. Together these channels carry a loss across lenders, funds, and exchanges.

How fast did the 2022 crypto contagion unfold?

From the first sign of the UST peg break on 9 May 2022 to the Celsius bankruptcy filing on 13 July 2022 took about 2 months. Within that window, Celsius paused withdrawals on 13 June 2022, the liquidation of Three Arrows Capital was ordered on 27 June 2022, and the firm filed for Chapter 15 bankruptcy on 2 July 2022.

The pace shows why early action matters. Unmet margin calls, a paused lender, and a court order all followed within weeks of the Terra failure. A holder who reviewed counterparties after the first event had more options than one who waited for the third. The timeline in the table below gives the key dates in order.

How can you map your own crypto contagion exposure?

Draw the links on one page. List every platform that holds your coins, every lender or borrower you deal with, every token you post as collateral, and every counterparty of those firms that you know. Mark which links depend on a single firm. Then ask what happens to your position if that firm pauses withdrawals for 30 days.

Teams in Singapore, ASEAN, and Hong Kong can use the same map for a treasury review. A 30-minute pre-diagnostic with EQOS Asia scores your own case, and the Λ simulator lets you test a first version yourself. This page is general information, not investment advice, and its facts were consulted on 23 October 2026.

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About the author

Stéphane Jambu

President, EQOS Forecast Asia

Stéphane Jambu leads EQOS Forecast Asia and works as a consultant in e-commerce, search visibility, and AI. LinkedIn profile