10
Mar
2023

2023 Quickly Takes Out Yet Another Crypto-Friendly Bank

In
0

Silicon Valley Bank (SVB), a leading provider of banking and financial services to the tech and startup community, recently experienced a collapse that has affected many of its clients, including some in the crypto industry. While venture capital firms and tech startups have been hit hard, several crypto companies have also disclosed their exposure to the bank.

SVB Contagion and how far it spread

Just like the contagion of FTX a lot of companies have seen damage after SVB has gone under, one such company is BlockFi, a failed crypto lender that filed for bankruptcy in November 2022 following the collapse of crypto exchange FTX. Documents filed related to BlockFi’s bankruptcy proceedings revealed that the company had $227 million in funds held at SVB, which reportedly are not insured by the Federal Deposit Insurance Commission (FDIC) as they are in a money market mutual fund. This may also constitute a violation of bankruptcy law.

Another company affected by the SVB collapse is Circle, the issuer of the world’s second-largest stablecoin USDC. On Friday, Circle announced that an undisclosed portion of the cash reserves used to back USDC and tie its value to the US dollar were held at Silicon Valley Bank. The company stated that SVB was one of six banks relied on to manage USDC’s cash reserves but claimed that USDC will be able to continue operating normally.

Stablecoins like USDC are cryptocurrencies backed by and pegged to the value of real-world assets. They are meant to serve as a sturdy intermediary between traditional finance and more volatile crypto markets. USDC, with a market capitalization of $42.17 billion, is the second-most used stablecoin in the world, and 25% of the assets backing USDC, which purports to be fully collateralized, are cash, according to Circle.

Pantera, a crypto-focused venture capital firm, may also have an unknown amount of exposure to SVB’s collapse. According to a February 3 SEC filing, SVB was among just three custodians of Pantera’s private funds. Last year, Pantera raised $1.3 billion for a fund exclusively focused on blockchain-based projects.

The Avalanche Foundation, which supports the Avalanche blockchain, announced on Friday evening that it has “a little over” $1.6 million in exposure to Silicon Valley Bank. Avalanche’s native token AVAX currently boasts a market capitalization of $4.84 billion.

Yuga Labs, the $4 billion company behind the dominant NFT collection Bored Ape Yacht Club, is also exposed to SVB, though the amount is not yet confirmed. Yuga co-founder Greg Solano said on Friday that the company has “super limited exposure” to the failed bank, and that the amount “doesn’t impact our business or plans in any way.”

Proof, another leader in NFTs, may have been hit harder. The Web3 project created by Digg co-founder Kevin Rose, which is behind the leading NFT collection Moonbirds, holds cash at Silicon Valley Bank, according to a statement issued on Friday. The company has not yet disclosed the amount of cash it has tied up with SVB, but it claims to have diversified its assets across ETH, stablecoins, and fiat.

Nova Labs, the startup behind the decentralized network and internet provider Helium, has also disclosed exposure to SVB, though the vast majority of its funds are in other institutions, according to Nova Labs CEO and Helium co-founder Amir Haleem.

While several crypto companies have been affected by the SVB collapse, others have announced that they have no exposure to the bank. Tether, the company behind the world’s largest stablecoin, USDT, announced on Friday that it had no exposure to SVB’s collapse. USDT has a market capitalization of $72.38 billion.

Anatoly Yakovenko, co-founder of the Solana blockchain, also claimed that neither Solana Labs nor the Solana Foundation had any exposure to SVB. Ryan Wyatt, president of Polygon Labs, the company behind Ethereum scaling solution Polygon, similarly announced that no Polygon-affiliated companies or foundations had any exposure to SVB.

Other companies that announced no exposure to SVB on Friday include Blur, the emergent NFT marketplace, Ledn, the crypto lending platform, crypto wallet Phantom, and DeLabs, the company behind top NFT collections DeGods and Y00ts.

 The president of Polygon Labs announced that no Polygon-affiliated companies or foundations had any exposure to SVB.

It is worth noting that SVB is not the only bank to have caught the attention of crypto firms. Other banks, including Silvergate, are facing a similar situation, with crypto companies disclosing their exposure to these banks. Circle, for instance, also recently cut ties with Silvergate, which shut down on Wednesday. Circle had used Silvergate to hold cash reserves until that point.

The collapse of SVB highlights the challenges faced by crypto firms in finding reliable banking partners, particularly as traditional financial institutions have been hesitant to work with crypto companies due to regulatory concerns. The incident also underscores the need for crypto companies to carefully assess and manage their banking relationships to mitigate the risk of being caught up in a similar situation.

 

Thanks for reading Solanews , remember to follow our social media channels for more!

Leave a Reply