Exclusive DappRadar Report: How Russia’s War and the West’s Response is Impacting Crypto

Russia's unprovoked war on Ukraine is shaking up crypto in unprecedented ways.

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Exclusive DappRadar Report: How Russia’s War and the West’s Response is Impacting Crypto

When Russia launched an unprovoked invasion of Ukraine, its neighbor and trading partner, the world reacted in horror and anger. The West, led by the U.S. and the E.U., immediately imposed severe sanctions on President Vladimir Putin’s regime, including barring its access to foreign reserves. The global economy has been impacted with soaring energy and commodities prices, and capital markets are grappling with the uncertainty and long-term effects of Putin’s aggression and the worst military tragedy on the European continent since World War II.

The cryptocurrency community, too, has been roiled by this tragedy. Due to blockchain technology’s peer-to-peer nature, there are a number of questions about the utility of Bitcoin and other digital assets in the war zone, and in Russia itself, where ordinary citizens have lost purchasing power as the rouble craters and access to financial infrastructure such as the Swift system.

In this report, we unpack the macroeconomic forces at work and analyze how blockchain-based solutions may come to play an important role as the war continues.


In a way not seen before, blockchain and web3 are demonstrating their value in contributing to the humanitarian effort to bring aid to Ukrainian refugees, and to providing support to Ukrainian citizens defending their country against the Russian military.

Before we plumb the specifics of these initiatives, let’s understand how Russia and Ukraine affect the macroeconomic picture.

Seismic shift in the global markets

Russia is one of the largest economies as a major energy and commodities producer, while Ukraine is a global leader in wheat production. Russia is the third-largest oil producer worldwide and holds around 5% of the world’s reserves. Half of its exported oil is consumed by European countries, fueling one-third of Europe’s oil consumption.


Russia is also the largest producer of natural gas and controls 25% of the world’s gas reserves. As a result, the price of crude oil has skyrocketed as sanctions came into force. So, too has gasoline, natural gas, coal, and heating oil. A rise in the price of electricity will impact Proof of Work blockchains like Bitcoin that require a high energy input.


Russia also has a tight grip on the fertilizer industry due to its high nitrogen production but is also a high exporter of copper, nickel, palladium, and platinum, elements required for the production of chips and graphic cards used to mine cryptos or play high-end games. At the same time, Ukraine is the sixth largest producer of Titanium, a metal primarily used in manufacturing industries, and the third-largest producer of neon gas.

Too big to fail?

Global leaders have also sanctioned Russian banks while providers of payment services have halted operations in the country. It is estimated that by mid-2021, Russia’s Central Bank held around $650B in reserves; however, the restrictions will limit that amount to approximately $230Bn, as 65% of those reserves are held overseas in currencies such as the U.S. dollar, the euro, British sterling, and gold.


Source: Statista

The sanctions also mean that at least seven of the Russian most critical financial institutions will no longer be part of SWIFT, a global messaging system that’s crucial to cross-border payments. SWIFT is utilized by more than 11,000 institutions generating over 35M daily transactions.

In similar fashion, payment giants Visa, Mastercard, American Express, and PayPal have all ceased operations in the sanctioned country, leaving millions of users without a critical monetary gateway. Although the citizens and businesses of Russia may eventually find alternatives to SWIFT, the financial constraints will damage its economy severely.

One of the advantages presented by blockchain is the ability to enable seamless peer-to-peer transactions without intermediaries, creating practically borderless assets. This type of decentralized financial ecosystem can prove helpful for millions of Ukrainians and Russians who have been deprived of a direct payment gateway.


However, the situation in Russia is far graver and more complex. Besides PayPal, Visa and Mastercard, payment and remittance services from organizations like Apple (Pay), Google (Pay), Wise, Remitly, and TransferGo have also halted operations in that country, bringing additional hurdles to a Russian working-class who could also be at risk of credit default.

As a result, the most prestigious rating agencies have lowered Russian credit rates significantly. S&P and Moody’s downgraded Russia’s sovereign ratings to junk level, while Fitch cut Ukraine’s credit rating. The Russian ruble has experienced significant devaluations of almost 33% in the last seven days and can drop even further.


To counteract the inflationary effect of a currency depreciation, cryptocurrencies and even other types of digital assets such as NFTs can be used as hedges. We’ve seen this in hyperinflation scenarios like the ones experienced in Zimbabwe and Venezuela.

However, the advantages presented by blockchain in terms of accessibility, decentralization, security, and storing value, transcend the economic context of a digital currency. We are witnessing the social potential of an organized crypto community.

Crypto Community United for Ukraine ??

Blockchain has shown its potential to create a positive impact in society on different occasions. This time, the world witnessed how celebrities, entrepreneurs, and people from different backgrounds teamed up to create web3 organizations called DAOs to support the Ukrainian people and their embattled government.

In a historic moment, Ukraine started to receive contributions on different networks. The Ukrainian government has received around $10M in tokens and NFTs (including CryptoPunk #5364 worth $212,000 approximately) in its Ethereum wallet, most of them collected after announcing a potential airdrop to contributors. The central authority also made available wallets for Bitcoin, Polkadot, and Tron networks.


Source: Dune

The creation of blockchain wallets by Ukraine is one of the first occasions in which the government of a recognized nation uses cryptocurrencies, joining El Salvador and Venezuela. However, Ukraine’s case marks the first time the government has used them for a humanitarian purpose.

Furthermore, established blockchain projects like Uniswap and independent DAOs acting like NGOs joined the Ukrainian cause. UkraineDAO, an initiative started by Pussy Riot, the Russian punk rock group that has faced jail time several times for vocal protests against Putin’s regime, has collected over $7M at writing, which will be entirely destined to aid Ukrainians.

Unchain Ukraine, a DAO created by Illia Polusokhin, co-founder of the Near blockchain and experienced web3 individuals, is another example. Unchain Ukraine has collected over $2.1M (most of it in NEAR) and receives donations from nine networks.


Source: reli3f

The support in Ukraine’s crisis is also coming from the NFT space. For instance, Reli3f, a humanitarian aid initiative initiated by Andrew Wang and members of the web3 community. This project consists of 7,400 NFTs from 37 different NFT artists, including Fvckrender, Pablo Stanley, and Defaced, and has raised and distributed at least $1M in ETH to support people in Ukraine.

NFT artists from different circles have also been quite active. Activist and artist Shepard Fairey will donate the proceeds of hix next collection for the humanitarian crisis in Eastern Europe. Meanwhile, 200 Ukrainian artists from the most renowned art galleries in the country have worked together to create an NFT that will be auctioned later.


Source: Elliptic

According to Elliptic, Ukraine has received almost $60M in crypto assets from over 118,000 wallets including NFTs, a $5M donation by Gavin Wood, Polkadot’s founder, and a $10M donation by Binance. So, after considering all the macroeconomic implications and realizing the support coming from web3 type of organizations, what can be expected from blockchain and cryptos in the short term?

What does it mean for blockchain and cryptos?

The crisis will create a domino effect across different industries and consolidate crypto as a potential tool for providing relief to Ukrainians, and average Russian families.

The demand for cryptocurrencies has been rising since the latest events, especially in the affected regions. The amount of bitcoin purchased in hryvnias and rubles is at a nine month high. Since February 24, the amount of bitcoin purchased with rubles at least tripled while the demand in Ukraine almost doubled. The surging bitcoin demand triggered a premium of 6% in both regions. WhiteBit in Russia’s case, whereas Binance and Kuna slashed the BTC-UAH trade pair with a 6% premium in Ukraine.


Source: Kaiko

Due to the sudden increase in the demand for cryptocurrencies, the price of the assets recovered, challenging the bear trend that has been detectable since November. Bitcoin recovered its support line above $38,000, while Ethereum surpassed $2,500. Nonetheless, a highly volatile period is widely expected, bringing an interesting challenge from the trading perspective.


Furthermore, the devastating effects of the current commercial situation and the unstable financial environment can trigger consequences that go from people defaulting to larger bank runs and bailouts. This scenario will generate even more distrust into the centralized banking system, paving the way to adopting and recognizing digital assets and cryptocurrencies.

However, if Russia opts to go that way, it is not far-fetched that opposing countries might try to ban the cryptos used to circumvent the sanctions, especially if an agreement with China is met. While leading exchanges like Kraken and Binance refused to restrict Russians from using their platforms, companies like OpenSea and Consensys have begun cutting off blacklisted regions.

It is also worth mentioning that Russia is no stranger to cryptos. The exact amount of cryptocurrency owned by Russians varies from source to source, going from $22B to $220B or 12% of the world’s crypto assets. Thus, they may be due to considering the digital approach. Besides, Russia is responsible for nearly 14% of BTC’s hash power necessary to mine blocks, the third-largest bitcoin mining hub in the world after the US and Kazakhstan.

Disrupted Economies

The adoption of blockchain technologies appears to be imminent. Not long ago, in 2019, to be precise, two important JP Morgan Chase executives called bitcoin a fraud and an asset whose value would only thrive in a dystopian environment characterized by a loss of faith in all major reserve assets. Three years later, the stance from one of the U.S.’s leading banks has shifted 180°. JPMorgan is believed to have major stakes at ConsenSys, and also became the first financial institution to formally open a space in the metaverse by revealing the Onyx lounge inside Decentraland.

After two years of struggling with a COVID pandemic that disrupted economies, supply chains, and the lives of millions, the war for Ukraine is finding a more digitalized society battling one of the highest inflationary periods in recent years. The financial impact from Russia’s decision will be felt even years from now and can potentially change the traditional finance ecosystem.

It is still early to tell the full effects of this conflict and how the world will react. For now, we all are focused on one single thing; the war ends soon with as few lives lost as possible.

DappRadar is an NFT and DeFi Dapp platform.