The crypto ecosystem was built on the belief that no one entity, meaning a bank, should be in charge of one individual’s finances. However, until that becomes a reality, traditional banking will likely have to serve as a bridge between centralized finance (CeFi) and decentralized finance (DeFi).
Thus, the shutdown 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, uncertain if larger entities will even want to touch crypto companies anytime soon.
“For now it's not clear 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 service.
“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.
In the long run, however, this contagion shouldn’t hurt the crypto industry because there will likely be other smaller banks that could bridge the gap. “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.
Read more: The Banking Crisis Is Not Crypto’s Fault
Circle and USDC are surviving (so far)
Perhaps Circle’s ability to quickly secure an automated settlement partner serves as one such prime example. The stablecoin issuer found itself in the middle of the chaos as its USDC depegged from theoretical $1 value after Circle said about $3.3 billion of USDC’s cash reserves were stuck in SVB, and that Circle could no longer mint or redeem USDC through Signature’s Signet product.
However, by late Sunday Circle was able to find itself a new automated settlement banking partner with Cross River Bank, keeping it open for business 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. He expects a rapid emergence of alternative banking partners and said there are still a few banking options available to U.S. crypto companies such as Cross River Bank and BankProv.
Another bank that could help the crypto industry, according to Boris Revsin, managing partner at Tribe Capital. “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.
Another potential solution would be for the crypto companies to look outside of the U.S. for banking partnerships and use strategies involving stablecoins,
“Crypto companies need to look globally for offerings, and they should consider a diversified stablecoin strategy for payroll, contractors and vendors to become more antifragile for the foreseeable future,” Revsin noted.
On-chain banking and other adaptations
Another novel idea, to which only crypto can help provide a solution, is on-chain banking, according to Brent Xu, CEO and founder of cross-chain DeFi protocol Umee.
“Future banking should become on-chain. That means that banks are going to start to more resemble blockchains as opposed to purely centralized entities,” Xu said. Such technology will allow the banks to have “on-chain metrics related to their exposure to AFS (available for sale) securities like Treasurys and to allow better on-chain metrics for their cash management activities, he added.
Regardless of the outcome, every bear cycle in crypto has experienced such conundrums and came out stronger, Xu said. “Having been in this industry for as long as I have, this news doesn’t surprise me to the point where we have become numb to the effects. It is to be expected,” he said. This won’t mean the end of crypto banking, he added. Rather, institutions that don’t adapt to new technology will be left behind.
“The crypto industry has gone through banking shifts like this every cycle. We won’t see a shortfall of banks. More so, we will see a shortfall of legacy banks that support this tech,” Xu added.
Brandy Betz and Aoyon Ashraf contributed reporting.
CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk offers all employees above a certain salary threshold, including journalists, stock options in the Bullish group as part of their compensation.