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By CNBCTV18.com Mar 14, 2023 11:28:31 AM IST (Published)
The failure of SVB, which is the sixteenth-largest banking institution in the US, sent shockwaves throughout the traditional financial industry. It is even being considered the second-largest banking failure in American history, rivalling only the Washington Mutual meltdown from 2008.
On Friday, March 10, the California Department of Financial Protection and Innovation (CDFPI) ordered the Silicon Valley Bank (SVB) to shut shop and hand over operations to Federal Deposit Insurance Corporation (FDIC). This is after the bank’s stock plummeted last week, over rumours that it was unable to cover its financial obligations and was looking for a bailout acquisition.
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The failure of SVB, which is the sixteenth-largest banking institution in the US, sent shockwaves throughout the traditional financial industry. It is even being considered the second-largest banking failure in American history, rivalling only the Washington Mutual meltdown from 2008. As such, the bank’s collapse has also had a ripple effect on the digital asset industry.
As one of the most popular lenders to tech startups in the world, SVB helped many up-and-coming crypto firms find their feet financially. It also served as the banking partner for some of the biggest names in web3. Therefore, since it has shuttered operations, several renowned crypto firms have come out and disclosed their exposure to the downed banking giant.
Here's a look at some of the crypto firms with exposure to the Silicon Valley Bank.
Circle
Circle is the issuer of USDC, the second-largest stablecoin on the market. It is also one of the firms with the largest exposure to the shuttered Silicon Valley Bank. Circle confirmed that SVB managed around 25 percent of USDC’s cash reserves. The stablecoin issuer tried to withdraw these holdings but its wires were not processed. This meant that more than $3.3 billion of USDC’s reserves were still held by SVB.
“Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB,” Circle said in a tweet from March 11. “While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle & USDC continue to operate normally,” read another tweet.
BlockFi
The collapse of the Silicon Valley Bank spelt more trouble for the already bankrupt crypto lender, BlockFi. According to some of the firm’s latest bankruptcy documents (filed on March 11), BlockFi had millions of dollars tied to SVB. However, Christine Okike, a lawyer representing BlockFi at its bankruptcy hearing, said that the firm would gain access to $37 million of these funds by the end of March 13.
However, the remaining $236 million was tied to “highly rated market mutual funds” operated by SVB. What’s concerning here is that market mutual funds are not insured by the FDIC and may even lose value over time. However, despite these revelations, Okike maintained that BlockFi was “fine” and that the firm had enough cash “to operate in the normal course, including paying employees and vendors.”
Avalanche
Avalanche is a prominent layer-1 blockchain network that is often touted as a potential Ethereum killer. However, the network’s parent company, the Avalanche Foundation, was another crypto firm with exposure to the downed Silicon Valley Bank. “We would like to confirm that the Avalanche Foundation has no exposure to Silvergate and a little over $1.6 million of exposure to Silicon Valley Bank. Avalanche Foundation is saddened by the news about SI and SIVB and hopes that all depositors are made whole,” the firm said in a March 11 tweet.
Yuga Labs, Nova Labs, Dapper Labs and Proof
Yuga Labs is the creator of some of the most sought-after NFT collections, including the Bored Ape Yacht Club (BAYC), CryptoPunks, Meebits, the Mutant Ape Yacht Club (MAYC), etc. However, the firm is also reported to have some amount of exposure to the collapsed Silicon Valley Bank. “We have super limited financial exposure. Thankfully doesn’t impact our business or plans in any way. Know that may not be the case for other crypto/tech companies so trying to be supportive,” said co-founder of the NFT platform, Greg Solano. However, he did not provide any details on the exact amount tied with the SVB.
Several other crypto firms adopted a similar plan of action, declaring exposure to the Silicon Valley Bank without disclosing actual amounts. For instance, Proof, another leader in the NFT space, also stated that it held cash at SVB. However, it did not divulge any information as to the extent of exposure. “Proof holds cash at SVB, however…we’ve thankfully diversified our assets across ETH, stablecoins, as well as fiat—so financially and operationally, we’re going to be OK,” said the company in a Twitter thread on March 11.
Similarly, Dapper Labs, the firm behind popular NFT collections such as NBA Top Shot and CryptoKitties, also declared some exposure to SVB. “Dapper Labs is not materially impacted by the situation involving SVB. We had minimal cash balances with SVB," said the company on its discord channel.
Finally, Nova Labs, the company behind the decentralized internet protocol, Helium, was also affected by the SVB collapse. “Nova Labs has some $ stuck in SVB, but the vast majority is in other institutions. I feel terrible for all the other founders and startups who were not so fortunate. hoping for a speedy resolution,” said CEO of Nova Labs and founder of Helium, Amir Haleem.
Silver lining
While the market did look pretty grim when news of SVB’s collapse first broke, things have begun to look up. For instance, the number of crypto firms not affected by the banking giant’s failure far outweighs those that have been affected by it. Over the last couple of days, Binance, Kraken, Paxos, Crypto.com, Tether, Solana, and several others have come out and declared zero exposure to SVB.
Moreover, even those with cash stuck at the shuttered bank are expected to receive access to their holdings. This is because the US Treasury, Federal Reserve and the FDIC issued a joint statement saying that “depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.” The statement was later endorsed by POTUS, Joe Bidden.
This has alleviated the FUD around the bank’s collapse and even helped crypto prices to bounce back to pre-Silvergate and SVB levels. For instance, at the time of writing, Bitcoin was changing hands at $24,493 per unit, up more than nine percent over the last 24 hours. In fact, most other coins in the top 100 list are in the green, with some even recording double-digit gains.
Moreover, many experts believe that recent events around US banking firms could force the Federal Reserve to be less aggressive with interest rate hikes. This could provide a further boost for the crypto industry. However, cryptocurrencies are highly volatile and the long-term contagion effect of the SVB collapse could still hold some surprises for the industry in the coming months. All we can do, for now, is wait and watch.
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