The recent shutdown of crypto-friendly banks in the US involving Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank is compelling crypto firms to reconsider options. Experts perceive the situation as presenting numerous options, including alternative banks and on-chain banking.

Experts wading into the matter indicated that the crypto ecosystem is yet to realize its vision, where a single entity influences one’s finances. The journey to realize such an objective justifies the continued reliance on traditional banking in bridging decentralized and centralized finance sectors. 

Consequently, the wake of troubled crypto-friendly banks is certainly causing endless headaches as crypto firms pursue new partners. Still, the larger banking entities express reluctance to associate with the crypto companies citing vulnerability to the sector’s volatility. 

The chief executive of Swiss-based fintech firm YouHolder, Ilya Volkov, lamented the uncertainty regarding the new financial institutions that crypto firms can build partnerships. He added that the crypto industry could exhaust options, necessitating government interaction to avert further challenges. 

Volkov notes that investors will likely portray fear-based reactions in the short run. Nonetheless, the crypto industry would not suffer the contagion in the long run. The Swiss firm’s executive holds that the crypto industry would recover from the situation since smaller banks would likely bridge the current gap. 

The managing partner at the DWF Labs, Andrei Grachev, echoes Volkov’s perspective that crypto liquidity would decline in the short term. However, he projects the liquidity would recover as new innovative challenger lenders would assume the vacant position following Silvergate, Silicon Valley, and Signature exit.  

Circle and USDC Survival

The Circle is a leading firm emerging strong from the collapse of crypto-friendly banks. The quick recovery is attributable to the capability to secure automated settlement. The issuer of the USDC stablecoin confessed to battling the chaos as the USDC stablecoin drifted from its $1 peg. 

The chaos locking Circle occurred when the stablecoin issuer revealed that an estimated $3.3 billion cash reserves for the USDC were trapped within Silicon Valley Bank. Also, Circle regretted the inability to minting or redeeming USDC via Signature’s Signet platform.

Circle’s subsequent update conveyed on Sunday evening indicated that Circle identified Cross River as the automated settlement partner allowing it to resume business on Monday. 

The Tie co-founder Joshua Frank termed a conclusion that the triple collapse of three US procrypto banks would lead to total divorce as shortsighted speculation. The chief executive of the information services provider portrayed optimism that alternative banking partners to crypto firms would rapidly emerge. Also, Frank restated the existence of banking options in BankProv and Cross River Bank.

Tribe Capital’s partner Boris Revsin proposed that Western Alliance Bank could facilitate the crypto sector. The managing executive added that Western Alliance Bank already offers a rails program that mirrors Silvergate and Signature Banks’ services. He acknowledges that others would soon pursue the vacant opportunity following the crypto banks’ shutdown. 

 Revsin considers a viable solution for the crypto firms is pursuing banking partners outside the US borders. Also, he considers it prudent to deploy stablecoin strategies. He noted that global offerings blended with diversified stablecoin strategies would transform the crypto companies into antifragile entities. 

 Viability of On-Chain Banking Options for Crypto Firms

Brent Xu, the chief executive, proposes the need to pursue on-chain banking. The executive identified as establishing DeFi protocol Umee decried the continued reliance on centralized banking. Instead, future banking should resemble blockchains rather than pure centralization.  

Xu considers that integrating on-chain metrics could ease tracking of the banks’ exposure to the available-for-sale securities similar to the treasuries. Doing so would improve cash management operations.

Xu dismissed claims that the previous week’s crash of SVB, Silvergate, and Signature banks would trigger a catastrophic meltdown of the crypto sector. Instead, the sector recovery would mirror the strong surge witnessed after the bear cycle. 

Xu ruled out that the triple shutdown of the banks hardly implies the conclusion of crypto banking. On the contrary, the past week’s events suggest that institutions failing to embrace new technology would perish. Xu emphasized that the crypto industry has weathered shortcomings emerging in every cycle. He noted that it was likely for legacy financial institutions to remain reluctant to support the crypto sector.