The crypto ecosystem was built on the belief that no one entity, meaning a bank, should be in charge of a person’s finances, but until that becomes a reality, traditional banking will likely have to act as a bridge between centralized finance and decentralized finance.
Thus, the closure of Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank will certainly cause headaches for the industry in the short term, as many crypto companies search for new banking partners, unsure if larger entities will even touch crypto. companies anytime soon.
“At the moment it is not clear which new financial institutions will partner with these crypto companies in the wake of Silvergate, SVB and now Signature,” said Ilya Volkov, CEO and co-founder of YouHodler, a Swiss-based international fintech platform. that provides a variety of Web3 crypto and fiat services.
“The industry is currently running out of opportunities and that needs to be addressed soon to prevent further problems,” added Volkov, noting that it will cause some fear-based reactions from investors.
In the long term, however, this contagion should not hurt the crypto industry, as there will likely be other smaller banks likely to bridge the gap. “Crypto-liquidity is likely to suffer in the short term, but this is an opportunity for new innovative challenger banks to step up and take the place of SVB, Silvergate and Signature,” said Andrei Grachev, managing partner at the digital asset market maker. DWF Labs.
Perhaps Circle’s ability to quickly secure an automated settlement partner serves as one such prime example. The stablecoin issuer found itself in the midst of chaos when its USDC was decoupled from a notional $1 value, after revealing that around $3.3 billion of USDC’s liquidity reserves were stuck in SVB and that it could no longer mint or redeem USDC through Signature’s Signet product.
By Sunday at the latest, however, Circle could find itself one new automated settlement banking partner with Cross River Bank, keeping it open for business on Monday.
“It would be short-sighted to assume that the events of the past few days will lead to a total separation of crypto and traditional banking,” said Joshua Frank, co-founder and CEO of digital asset information services provider The Tie. He expects a rapid emergence of alternative banking partners and noted that there are still a few banking options available to US crypto companies such as Cross River Bank, BankProv, etc.
Other potential banks that could come to help the crypto industry include Western Alliance Bank, according to Boris Revsin, managing partner at Tribe Capital. “There are other innovative banks, like Western Alliance Bank, that will continue to offer bank rails like what Silvergate and Signature offered and many more that will look at this technology as an opportunity for growth,” Revsin said.
Perhaps a potential solution would be for the crypto companies to look outside the US for potential banking partnerships and use strategies involving stablecoins,
“Crypto companies need to look globally for offers and should consider a diversified stablecoin strategy for wages, contractors and suppliers to become more anti-fragile for the foreseeable future,” noted Revsin.
Another new idea that only crypto can help provide a solution to is on-chain banking, according to Brent Xu, CEO and founder of cross-chain decentralized finance (DeFi) protocol Umee.
“Future banking should become on-chain. This means that banks will start to look more like blockchains as opposed to purely centralized entities,” Xu said. Such technology will enable banks to have “on-chain metrics related to their exposure to AFS (available for sale) securities such as government bonds and to allow better on-chain metrics for their cash management activities,” he added .
Regardless of the final outcome, every bear cycle in crypto has experienced such conundrums and emerged stronger, Xu said. “Having been in this business as long as I have, this news doesn’t surprise me to the point where we’ve become numb to the effects. That’s to be expected,” he said, adding that this will not mean the end of cryptobanking; rather, institutions that do not adapt to new technology will be left behind.
“The crypto industry has gone through bank changes like this every cycle. We won’t see a shortage of banks. More so, we’ll see a shortage of legacy banks that support this technology,” Xu added.
Brandy Betz and Aoyon Ashraf helped report the story