The California Department of Financial Protection shut down Silicon Valley Bank (SVB) on Friday, making it the second-largest bank failure in American history. The bank, which disclosed $212 billion in assets in the most recent quarter, was for a long time considered as one of the most illustrious financiers of tech start-ups globally. The IT sector has been rocked by its collapse, with many venture capital firms and cryptocurrency firms disclosing their connection to the bank.
SVB was holding $227 million in money for the cryptocurrency lender BlockFi, which declared bankruptcy in November following the demise of FTX. A portion of the financial reserves used to underpin USDC, which is the second-largest stablecoin in the world according to Circle, were held at SVB, the company stated. Pantera, a venture capital firm focused on cryptocurrencies, had SVB as one of its three private fund custodians. The dominating NFT collection Bored Ape Yacht Club’s creator, Yuga Laboratories, has “extremely minimal exposure” to the defunct bank.
Although it has diversified its assets among ETH, stablecoins, and fiat, cryptocurrency lender BlockFi, which declared bankruptcy in November following the demise of Proof, another pioneer in NFTs, acknowledged it has funds at Silicon Valley Bank. Although CEO Amir Haleem stated that the “great bulk” of its funds were stored in other locations, Nova Labs, the startup that created the decentralised network and internet service provider Helium, acknowledged exposure to SVB. The organisation that controls USDT, the biggest stablecoin in the world, had no involvement in the demise of SVB. The Solana blockchain’s creator, Solana Labs, was similarly unaware of SVB.
Due to the exposure of multiple cryptocurrency companies to the bankruptcy of a single institution, the collapse of SVB has brought to light the dangers of concentration in the financial system. Additionally, it has raised concerns about the type of currency reserves that stablecoins maintain. According to Circle, USDC, which has a $42.17 billion market capitalization, maintains 25% of its assets in cash. Stablecoins are designed to provide as a reliable bridge between conventional finance and the more erratic crypto markets, but because of their reliance on banks, they may be vulnerable to sudden changes in the economy.
Concerns about the overall stability of the financial system have also been sparked by the failure of SVB. Several analysts have cautioned against the prospect of other bank collapses, especially among smaller lenders, given that the bank’s fall occurred during a time of growing inflation. Such failures might have an impact well beyond the tech and cryptocurrency sectors, demonstrating how linked the financial system is.
The failure of Silicon Valley Bank has shocked the IT and cryptocurrency sectors, with many businesses disclosing their exposure to the bank. While the effect of the bank’s failure on the larger financial system is still unknown, the dangers of concentration and reliance on banks highlighted by SVB’s failure could have significant ramifications for the future of the financial sector