Duration risk and rate hikes collapse Silvergate and SVB
This past week has been tumultuous for both the crypto and larger tech communities. What we’re witnessing with both the Silvergate and Silicon Valley Bank (SVB) collapses are systematically different from what we saw with the Voyager, Genesis, Celsius, and Blockfi’s, yet leading to the same results. We’re watching large institutional lenders, both regulated and unregulated, become insolvent due to classic bank runs.
The key takeaway here is that there is a false sense of security and trust we place on these large centralized institutions, and that false sense of trust is what puts our assets at risk.
USDC biggest vulnerability is the US banking system
Circle’s stablecoin USDC came under scrutiny, and subsequently depegged, when it was revealed that Circle banked with SVB, having $3.3B of their 1:1 backing at the bank. After falling to 88 cents per token, USDC has recovered its peg. It’s now more obvious than ever that despite Circle’s regulatory and fiscal due diligence, it has no control over one crucial weak point, the US banking system.
“The bank failures in the United States have demonstrated that banks themselves are introducing risk to crypto assets, versus the inherent direction of travel of risk, that a lot of the regulators were concerned about, is that crypto would introduce risk to banking,” said Disparte, Chief Strategy Officer at Circle.
Despite last week’s chaos, we shouldn't forget how crucial stablecoin technology is to bridge our TradFi and DeFi ecosystems. Nor should this banking crisis look poorly on Circle who has done everything in their power to maintain a stable product for their customers. If anything, this is proof that holding cash isn’t really as safe as we believe it to be. Companies relying on centralized entities should see value in managing portions of their funds in digital assets, and stablecoins continue to be a great option for not just maintaining value but also both transacting in DeFi and for off ramping into fiat.
DeFi is the beacon and remains resilient despite CeFi contagions
Both Ethereum and Bitcoin pumped over the weekend and are now trading higher than the last 6 months despite TradFi and CeFi contagions. Treasuries looking into diversifying their funds should seriously consider digital assets to limit risks stemming from banks, governments, or other centralized institutions.
DeFi treasury management requirements have evolved beyond key management of idle funds. For web3 startups, institutions, and DAOs, the next question is on how to potentially earn yield on your assets on top of secure custody. Choosing the right wallet or wallet tech stack should be the main focus of all treasuries in this current climate.
Don’t trade one risk for another with your DeFi wallet
As you consider your optimal allocation of fiat in banks versus stablecoins, it’s crucial that you’re not compromising one risk for another. Institutions holding digital assets may be shopping around for fragmented solutions that have them weighing security versus connectivity. Legacy custody solutions were designed for securing your digital assets and holding them, not for actively transacting in DeFi. However, for proper treasury management, transacting in DeFi will be required activity. Fordefi’s MPC wallet solution is purpose-built for transacting in DeFi without compromising your security or compliance demands. Institutions now have access to thousands of dApps, full control over their policies and internal workflows, in addition to smart contract enrichment and risk alerts. You no longer have to trade security for connectivity with Fordefi’s MPC wallet and security platform.
We’ll demonstrate in subsequent blogs on treasury management best practices, what technologies meet your security and compliance checklist, available solutions, and why Fordefi’s MPC wallet will help you reach your DeFi goals.
Fordefi's MPC wallet platform and web3 gateway enables institutions to seamlessly connect to dApps across a wide range of chains while keeping digital assets secure. Fordefi is the first institutional wallet and security platform built for DeFi, offering MPC key management, self-serve DeFi policy controls, time-of-transaction smart contract insights, transaction simulation and risk alerts. Fordefi was founded in 2021 by crypto custody and cybersecurity experts and designed in close collaboration with industry-leading trading firms, funds and custodians.