As Silvergate, SVB and Signature Fall, Crypto Firms Look for a Bank ‘Back Wave’

Source: The Block

Compilation: Mary Liu, Bitui BitpushNews

Image source: Generated by Maze AI tools

After the sudden collapse of three prominent crypto banking partners, Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank, crypto startups sought to expand into new banking businesses, including alternatives such as Mercury, Brex and Customers Bank. banking services.

While savers have nothing to lose, the closure of Signature and Silvergate Bank, which also had to cease operations last week due to a bank run, has had a severe impact on the cryptocurrency industry, according to a venture investor at a leading cryptocurrency investment firm. “The fact that U.S. banks have fewer and fewer options for projects in this space is a euphemism, not really good news,” they said.

Operational Bottleneck 2.0

The investor urged portfolio companies to add at least one more bank, but finding one was easier said than done.

Since the end of last year, U.S. regulators have stepped up their regulatory actions against cryptocurrency companies, especially those related to banking services, whether they are stablecoin issuers such as Paxos or Crypto asset banks such as Custodia. Venture capitalist Nic Carter called this “Operational Bottleneck 2.0,” referring to the crackdown on cryptocurrencies through the banking industry.

Carter tweeted: “A month ago, it was a bottleneck – banks discouraged access to crypto, now it’s almost a…beheading, every bank that supports crypto is closed.”

George Bousis, co-founder and venture capitalist at early-stage venture firm Protagonist, remains cautious about recommending banking partners because the environment changes daily.

He told The Block: “I wish there was a better answer, like having a crystal ball to know what’s going to happen at this point, but I don’t have one, it’s one of my worries and it’s the thing that keeps me up at night .”

What are the options for cryptocurrency startups?

While publicly crypto-friendly banks in the U.S. are fading from the limelight, some web3 companies are still trying to find banking partners.

The venture investor, who asked not to be named, said options included Mercury, Brex and even Wall Street giant JPMorgan. JPMorgan declined to comment. Mercury and Brex did not immediately respond to requests for comment.

“In the medium term, we prefer the big banks,” said an anonymous investor. [例如] Chase, but at the moment, does suggest any plan B or C, so a platform like Brex or Mercury that can cooperate quickly is a good choice. “

Multi-signature startup Den has been using Mercury as a banking partner combined with the use of on-chain assets.

Den co-founder Jonah Erlich said of Mercury’s partnership process that Den is taking advice from venture investors to increase the percentage of funds it holds on-chain following the weekend’s contingency. “It’s been a very smooth process for us, we’ll be staying at Mercury but also exploring the use of clearing accounts and the GSIB,” he said. [全球系统重要性银行] Open an account with a similar fintech platform”.

Mercury, a fintech startup, is partnering with two Federal Deposit Insurance Corp.-insured banks, Evolve Bank and Trust and Choice Financial Group. Its checking and savings deposits can now be FDIC-insured for up to $3 million, compared with the standard $250,000 threshold. This is thanks to the use of sweep networks, which enable customer deposits to be distributed across banks.

“We had twice as many new customers today than on a normal weekday,” Mercury’s CEO and founder Immad Akhund said over the weekend.

Another option in the U.S. is Customers Bank, but many of those banks don’t have the same access to deposits and withdrawals that Signature and Silvergate offer, said Michael Safai, co-founder and partner at trading firm Dexterity Capital.

Regional and Community Banks

Another challenge is that large U.S. banks and even regional banks do not support holding tokens or crypto assets.

Mercury itself is privately held, but its partner, Choice Financial Group, is publicly traded. Shares of many regional and large public banks also fell sharply following recent events, despite U.S. President Joe Biden’s assurances on Monday.

Neil Zhang, founder of prediction markets startup Frontrunner, had trouble securing banking partnerships due to the double whammy of running a web3 company focused on online betting. His startup currently relies on two regional banks, MVB and Western Alliance. Neither bank immediately responded to a request for comment on its products.

“It took us a long time to find these two banks that were willing to take us in, and while they weren’t the newest or most technologically advanced banks, we’ve been impressed with their service since switching from Brex earlier this year,” Zhang said. satisfy”.

He added that while both banks have taken significant hits in the public markets, the company has no intention of ditching either bank and has been looking to diversify further.

Assets on the chain

Many cryptocurrency startups store at least some assets on-chain. Frontrunner primarily holds fiat funds, but crypto assets are all stored in multi-signature Gnosis Safe wallets, Zhang said. He added that the startup has not received any guidance from investors suggesting it change its approach.

Thibaut Sahaghian, chief executive of Web3 corporate card startup Multis, said Multis also hadn’t received any proposals from investors and had just allocated funds to multiple banks. It’s also attracting many web3 customers at the moment, he added, because it’s a viable alternative to Mercury’s offering of checking accounts and corporate cards.

Sahaghian said: “As of now, Multis is in a good financial position. We are fortunate to have limited exposure to SVB and we still have ample USD, EUR, USDC, DAI, ETH in multiple accounts including ours and BTC funds”.

The startup currently uses Synapse in partnership with Lineage Bank for its banking operations and has no plans to switch providers. It is working to further diversify its financial service providers. Synapse and Lineage Bank did not immediately respond to requests for comment on their products.

He said: “We cannot avoid moral hazard, so we need to diversify into various assets to maintain business operations. USDC and stablecoins are only part of the answer, because redemption is affected by the current crisis, by relying on centralized issuance of fiat currencies. But we It’s going in the right direction.”

Looking beyond the U.S.

Startups not based in the U.S. have the advantage of taking advantage of players like Sygnum and Seba Bank — Swiss banks that are also allowed to hold crypto assets.

Martin Burgherr, chief client officer at Sygnum, told The Block that following the Silvergate fallout, the bank received a flood of inquiries, but they were unable to fully fill the void due to the company’s strategic decision not to serve US clients.

Safai, co-founder of Dexterity Capital, said: “Crypto companies looking for new banks may have to look overseas for the time being. There are several banks in the Bahamas, and there are some crypto-friendly and trustworthy options in Europe.”

Source of information: compiled from 8BTC by 0x Information.Copyright belongs to the author, without permission, may not be reproduced

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