2023-3-21 14:29 |
Cryptocurrencies were dealt a huge blow last week when major banks key to the sector, Silvergate, Silicon Valley Bank, and Signature, collapsed abruptly, destabilizing the on-off ramp services for most digital asset companies.
Following the events that caused the fall of the lenders, industry experts are urging the digital asset community to look beyond the traditional banking platforms serving as a bridge between centralized finance (CeFi) and decentralized finance (DeFi).
Charles Hoskinson, the co-founder of Cardano blockchain, proposes that the crypto community should reduce their reliance on traditional banks. ”Crypto needs to de-risk itself from those unstable and volatile banks,” he tweeted, adding ”the moment we can digitize treasuries, it is game over for banks.”
The impact on stablecoinsThe collapse of the three important crypto banks affected most crypto service providers, including Coinbase, Paxos, and stablecoin issuers. For instance, the failure of SVB left Circle, the USDC issuer, with uncertainty over a $3.3 billion sum held with the lender.
As a result, USDC lost its supposed peg to the US dollar, dropping as low as $0.87. It was only restored when Circle announced Monday that it had found a new automated settlement in partnership with the Cross River Bank.
Similarly, Coinbase recently disclosed a $240 million exposure in Signature bank, another crypto-friendly bank that was liquidated around the same period. The lender also went down with $250 million worth of deposits from Paxos.
Ilya Volkov, the CEO and co-founder of Swiss-based international financial technology company, YouHodler, shared his comments with Coindesk, saying the industry needed partnerships with other financial institutions to attract investors.
‘‘The industry is currently running out of options, which needs to be addressed soon to prevent additional problems,’’ he said. ‘‘For now, it is not clear what new financial institutions will partner with these crypto companies.’’ The problem would reportedly cause a liquidity crisis before smaller banks could close the gap, according to Volkov.
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