Who would have thought that the US regulator would guarantee stablecoins? In the wake of successive U.S. bank failures in recent days, the Federal Reserve, the Treasury Department and the FDIC have announced that they will guarantee part of the collateral for Circle's USDC stablecoin. Will the company, which has BlackRock managing about $30 billion in short-term U.S. Treasuries, become a heavyweight in traditional U.S. finance? We'll get back to that in Crypto Analysis, after this week's key news.
Block 1 : Essential News
- Signature bank was under investigation for money laundering
Crypto-friendly bank Signature, recently put under scrutiny by regulators, was reportedly under investigation for money laundering related to customers in the crypto ecosystem. The Securities and Exchange Commission (SEC) and the Washington and Manhattan Departments of Justice were looking into the bank's case to determine whether it would have facilitated money laundering by failing to implement adequate oversight measures. Now the investigations could be closed without prosecution, but shareholders have already sued the institution for claiming the bank was in good financial health shortly before its forced closure. Sudden bank closures in the U.S., including Signature, could also create difficulties in accessing liquidity for cryptocurrency companies that needed their services.
- Meta revises its NFT plans and lays off 10,000 employees
Meta is dropping its plans for non-fungible tokens (NFT) on Instagram just under a year after announcing their launch, to focus on other ways to support creators, according to head of commerce and financial technology Stephane Kasriel. In fact, the few U.S. creators who participated in the pilot remain the only ones who have tested these features. Meta's financial losses related to the metaverse could be behind this decision, with Mark Zuckerberg perhaps turning to artificial intelligence for further innovation. The company also announced to lay off 10,000 people in the coming months to improve the company's operations, according to a press release published this week.
- Epic Games to pioneer blockchain games
Epic Games, the studio behind Fortnite, plans to add about 20 blockchain games to its marketplace by next year, showcasing NFT technology. The Epic Games Store platform already offers five blockchain games and plans to add games such as Grit, Delisior, and Superior, but Epic remains cautious about the relationship with these games and only oversees their security and visibility.
- Sam Bankman-Fried gave himself $2.2 billion
FTX's new management recently released financial data revealing that the company's former executives, including Sam Bankman-Fried, gave themselves large sums using exchange funds. The revelations include more than $2.2 billion paid to Bankman-Fried and hundreds of millions of dollars given to other team members. The current management team conducted an exhaustive investigation to determine the company's liabilities and discovered that former executives made large loans to themselves through their companies. Large amounts were also spent on luxury properties in the Bahamas and political donations. Bankman-Fried is currently facing several charges to which he has pleaded not guilty, while most of his former associates have testified against him and admitted to the illegal activities conducted by the company.
Block 2 : This week's crypto analysis
In a recent interview, Jeremy Allaire, CEO of Circle, described the current state of the company as a "banking chase." The recent failures of cryptocurrency-focused banks such as Silvergate Bank, Signature Bank, and Silicon Valley Bank attest to this.
While Silicon Valley Bank had a large number of startups among its customers, the collapses of Silvergate and Signature Bank were particularly disruptive to the cryptocurrency industry, as many startups in the sector relied on their dominant 24/7 instant U.S. dollar settlement networks, the Silvergate Exchange Network and Signet, to convert money into cryptocurrencies and vice versa around the clock.
Circle, the issuer of the popular stablecoin USD Coin, was one of the companies affected by the collapse of these banks, as it relied on SEN and Signet to allow exchanges and other large digital asset movements to mint and exchange USDCs for U.S. dollars around the clock. Following the bank collapse, Circle and platforms like Coinbase halted redemptions and issuances over the weekend.
Approximately $3.3 billion in cash backing the token was tied up for days at the now-defunct Silicon Valley Bank, causing USDC to temporarily lose its dollar value and tarnishing its reputation as one of the most trusted crypto assets. As a result, the USDC dropped from its $1 level to 88 cents over the weekend, causing crypto-investors to panic.
But who would have thought that the US government would bail out stablecoins? The Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. announced their intention to back all deposits of two failed banks, and they also pledged to guarantee at least 8% of the collateral for the stablecoin USDC.
This situation highlights the dependence of stablecoins on the networks built by traditional banks. According to Allaire, many banks are interested in filling the void left by Silvergate and Signature Bank, but they are likely to proceed cautiously because of regulators' warnings to take extra precautions with their customers' assets.
Some banks already have similar settlement networks, such as Cross River Bank and Customers Bank, but the company's CEO declined to say whether or not Circle plans to use either network. He said Circle was evaluating a number of settlement bank innovations. In the meantime, the company said it has transferred 100 percent of its cash to Bank of New York Mellon and will now hold its funds with major banks for the foreseeable future.
Last week's chaos raises the question of whether cryptocurrency companies could get into the banking business themselves. Circle had planned to apply for its own banking charter in 2021, but has since changed its plans and is now hoping for new legislation that would create a new category of banking charters for stablecoin companies. It will most likely take several years for this bill to potentially become law and for Circle to potentially become a bank.
Block 3 : Gainers & Losers
Block 4 : Things to read
Crypto is facing a banking crisis. For some, it's a conspiracy (Wired)
Sam Bankman-Fried reportedly took $2.2 billion from FTX entities (Financial Times)
Antifragile: Serhiy Tron fights to bring bitcoin to Ukraine (Bitcoin Magazine)