Cryptocurrency was founded on the notion that no single institution should control a person’s finances. Until that becomes a reality, traditional banking will most likely act as a link between centralized finance (CeFi) and decentralized finance (DeFi).
In the short term, the closure of Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank will undoubtedly cause problems for the industry as numerous crypto companies seek new banking partners. It is also unknown whether larger organizations will ever want to work with crypto startups.
Future is Obscure
“It’s unclear what new financial institutions will partner with these crypto companies in the wake of Silvergate, SVB and now Signature.” Said Ilya Volkov, CEO of and co-founder of YouHodler, a Swiss-based international fintech platform providing a variety of Web3 crypto and fiat services.
“The industry is currently running out of options and that needs to be addressed soon to prevent further problems.” Volkov added, noting that it will cause some fear-based reactions from the investors.
This threat shouldn’t harm the cryptocurrency industry in the long-run due to other smaller banks that can fill the void. “Crypto liquidity is likely to take a hit 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 digital asset market maker DWF Labs.
Circle and USDC surviving (so far)
Perhaps one such good example is Circle’s capacity to quickly choose an automated settlement partner. Circle claims that about $3.3 billion of USDC’s cash reserves are trapped in SVB and that Circle can no longer mint or redeem USDC through Signature’s Signet product. The stablecoin issuer found itself in the heart of the crisis as its USDC depegged from theoretical $1 value.
Yet by late Sunday, Circle had managed to connect with Cross River Bank as a new automated settlement banking partner, keeping it operating on Monday.
“It would be shortsighted to assume that the events of the last few days will lead to a total divorcing of crypto and traditional banking.” Said Joshua Frank, co-founder and CEO of provider of information services for digital assets, The Tie. Frank asserted that there are still a few financial options open to US cryptocurrency enterprises, like Cross River Bank and BankProv. Moreover, he anticipates a rapid emergence of alternative banking partners.
According to Tribe Capital managing partner Boris Revsin, there is another bank that might be beneficial to the crypto sector. “There are other innovative banks, like Western Alliance Bank, that will continue to offer banking rails like what Silvergate and Signature offered and many more that will be looking at this technology as an opportunity for growth,” said Revsin. Cryptocurrency companies could also consider searching outside of the US for banking partnerships and employ stablecoin-based techniques.
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