The crypto ecosystem was founded on the principle that no single institution, such as a bank, should control an individual’s finances; nevertheless, until this becomes a reality, traditional banking will likely have to function as a bridge between centralized and decentralized finance.
Hence, the closure of Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank will undoubtedly cause short-term issues for the industry. Many crypto companies look for new banking partners, wondering if larger institutions will even want to touch crypto enterprises in the near future.
Ilya Volkov, the CEO and co-founder of YouHodler, a Swiss-based international fintech platform providing various Web3 crypto and fiat services, stated that it is currently unclear which new financial institutions will partner with these crypto companies following the examples of Silvergate, SVB, and now Signature.
Volkov added that the industry is currently facing a shortage of options, which needs to be addressed soon to avoid further problems. He also mentioned that this situation might cause some fear-based reactions from investors.
On a long-term basis, this contagion shouldn’t be detrimental to the crypto business since other smaller banks will likely fill the void. According to Andrei Grachev, the managing partner at digital asset market maker DWF Labs, crypto liquidity is expected to experience a setback in the short term. However, he sees this as an opportunity for new and innovative challenger banks to step up and replace SVB, Silvergate, and Signature.
Circle and USDC Stand Strong Amid Turbulent Banking Environment
Circle’s ability to quickly secure an automated settlement partner may perfectly illustrate this. After reporting that around $3.3 billion of USDC’s cash assets were locked in SVB and that it could no longer mint or redeem USDC via Signature’s Signet product, the stablecoin issuer found itself in the heart of the pandemonium as its USDC de-pegged from its theoretical $1 value.
By late Sunday, Circle was able to secure a new automated settlement banking partner, Cross River Bank, which allowed it to continue its operations on Monday.
According to Joshua Frank, the co-founder and CEO of The Tie, a provider of information services for digital assets, it would be a narrow-minded view to assume that the recent events completely separate crypto and traditional banking. He anticipates a swift rise of alternative banking partners and highlights that there are still a few banking options accessible to US-based crypto firms, such as Cross River Bank and BankProv.
Boris Revsin, the managing partner at Tribe Capital, suggests that Western Alliance Bank could be another potential banking partner for the crypto industry. According to him, Western Alliance Bank and many other innovative banks will continue to provide banking rails similar to Silvergate and Signature. Revsin believes that several banks will consider this technology as an opportunity for growth.
Crypto firms might seek beyond the U.S. for new banking alliances and implement stablecoin tactics as a possible answer.
Revsin noted that crypto companies should search for offerings globally and contemplate a diversified stablecoin strategy for their payroll, contractors, and vendors to become more resilient for the foreseeable future.
Revolutionary Future for On-Chain Banking in Crypto Industry”
Brent Xu, CEO and founder of the cross-chain decentralized finance (DeFi) protocol Umee, asserts that on-chain banking is a revolutionary concept for which only crypto can give a solution.
Xu stated that the future of banking should be on-chain, which implies that banks will start to resemble blockchains rather than being purely centralized entities. He added that this technology would enable banks to have on-chain metrics related to their exposure to AFS (available for sale) securities like treasuries and also enhance on-chain metrics for their cash management activities.
Xu stated that regardless of the result, every bear cycle in crypto has endured similar dilemmas and emerged stronger. Xu mentioned that having been in the industry for a long time, the recent news doesn’t come as a surprise, and its impact has almost become insignificant. He further added that this situation is to be expected, and it does not imply the end of crypto banking. Instead, he believes that institutions that fail to adapt to new technology will be left behind.
According to Xu, the crypto industry has experienced banking shifts like this in every cycle, and banks won’t be scarce. However, there might be a scarcity of legacy banks that support this technology.