What happened

Most major cryptocurrencies saw marked declines this past week, on growing contagion concerns resulting from the fallout of once-prominent crypto exchange FTX. Thus, it's perhaps unsurprising to note the double-digit declines in popular tokens Cronos (CRO -1.49%), Curve DAO (CRV -3.02%), and Polygon (MATIC -1.64%)

It wasn't necessarily the size of the weekly decline for these three cryptos -- which fell 18.2%, 19%, and 12.4%, respectively, as of noon ET on Friday -- that has shocked investors into selling. Rather, it's the nature of these three tokens that has helped to garner outsize losses relative to the overall market. 

Cronos, the native token of the Crypto.com exchange, has reasonably become a target of short-sellers, after crypto lender BlockFi announced it may explore bankruptcy protection and Genesis and Gemini reported the halting of services this week.

Curve, a platform aimed at providing liquidity to market makers and investors in the crypto world, has also been the target of investors who fear liquidity issues may spread to this corner of the crypto market. 

And Polygon, a popular Ethereum scaling solution, appears to be caught up in the contagion discussion as well, with reports that Alameda, FTX's hedge fund arm, could dump 2.9 million MATIC tokens into a market with limited liquidity right now.

So what

Each of these three large-cap projects have their own idiosyncratic headwinds that investors are factoring in today. Interestingly, these concerns all seem to tie back to the collapse of FTX, signaling how interconnected the crypto world appears to be.

With so much discussion around the need for interoperability, or for blockchains to be able to work together, one might think that the otherwise siloed nature of most crypto projects would protect investors from a collapse in one corner of the market. That said, centralized entities such as FTX have proven that systemic risk does exist in this space. 

Now what

Moving forward, investors in any particular crypto project may need to do much more due diligence than in the past. The incredible valuation declines we've seen this year thus far have mainly been tied to monetary policy tightening and other macro factors. However, of late, most of the downside in the crypto sector appears to be self-inflicted due to systemic risk many investors did not previously consider.

While investors can certainly make a bull case for why Cronos, Curve, and Polygon have potential upside over the long term, it's clear that these near-term headwinds remain strong. Until these projects can prove that their exposure to FTX is limited, investor appetite for these tokens may be muted.