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Crypto’s Favorite Bank Tanks

Weekly Recap: Silvergate flails, Solana does its thing
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Mar 4, 2023 • 4 min read

Dear Bankless Nation,

If you thought the crypto company blowups were over, this week offered an alternative take. Big exchanges and lenders are running out of banking options and regulators are still swarming.

For our weekly recap, we dig into:

  1. The Silvergate shoe drops
  2. Crypto descends on Denver
  3. Solana suffers another outage
  4. Oasis counterhacks its hacker
  5. ‘Everything other than Bitcoin’

- Bankless Team

📅 Weekly Recap

Here’s a recap of the biggest crypto news from the first week of March.

1. The Silvergate shoe drops

Crypto companies are not licensed as financial lenders so they need licensed banks to serve the on- and off-ramping needs of their customers.

One of the largest crypto-friendly banks, Silvergate, saw its shares tank 55% on Thursday. This comes amid market concerns of its financial sustainability following FTX’s collapse last November. Silvergate has also been facing a DoJ probe over its FTX and Alameda dealings since early February. The bank previously reported a ~$1B loss for Q4 2022 and cut its staff by 40%.

As a result, Silvergate’s clients are jumping ship en masse. Coinbase, Circle, Paxos, Crypto.com, Bitstamp, Cboe Digital Markets, Galaxy Gemini and LedgerX have announced that they are each cutting ties with Silvergate.

This week, Coinbase announced that it was switching to another crypto-friendly bank, Signature, to service Coinbase Prime account holders.

Kraken on the other hand, is pulling back from using Signature bank to service retail clients. On January 22, Binance also reduced its exposure to retail clients through Signature, setting a new policy that served only customers transacting more than $100K.

On Friday, Silvergate announced it was suspending crypto payments.

"Effective immediately Silvergate Bank has made a risk-based decision to discontinue the Silvergate Exchange Network (SEN). All other deposit-related services remain operational," Silvergate wrote in a statement given to media outlets.

2. Crypto descends on Denver

It’s ETH Denver week.

Here’s a summary of product launches this week thus far:

3. Solana suffers another outage

Solana goes out… again.

After the network suffered a “significant performance degradation,” the network entered a safe mode that paused processing of transactions. Solana was then restarted by validators and came back up after 19 hours.

Developers still don’t know the reason why the network went down.

Separately, Solana is shutting down its retail stores in NYC and Miami.

Jito Labs, a MEV-focused research lab, states that over 30% of all Solana’s transactions are MEV spam attempts.

4. Oasis counterhacks its hacker

The Wormhole bridge succumbed to an attack in February 2022 that saw 120K wETH ($321M) stolen. Since then, the hacker has constantly shuffled the stolen crypto through different Ethereum dapps.

According to an official Oasis blog post, whitehat hackers reached out to the Oasis team on February 16 demonstrating how to take the funds back from the hacker thanks to a “previously unknown vulnerability in the design of the admin multisig access”. Oasis is a DeFi aggregator that spun off as its own entity from Maker DAO in mid-2021.

Five days later, Oasis received an order from the High Court of England and Wales last week to retrieve those stolen assets.

So Oasis employed its multisig and conducted a “counter exploit” via an upgradable “proxy” smart contract, retrieving $225M back from the hacker and sent it to an “authorized third party” that is likely to be Jump Crypto, the trading firm that restored the funds last year. See Dan Smith’s article for a technical breakdown.

The good news: Some funds are restored. The bad news: Oasis had a multisig-enabled backdoor to upgrade its code all along, and regulators can lean on protocols to use them when they want to.

What precedent does this set for DeFi?

5. ‘Everything other than bitcoin’

Much to the joy of Bitcoiners and the chagrin of everyone else, Gary Gensler declared last week that everything in crypto is a security safe for Bitcoin.

The immediate response from Twitter was that Gensler’s opinion is just that: opinion. That crypto tokens are securities is a legal matter yet to be settled in American courts.

Nor is Gensler’s opinion reflective of lawmakers in Congress. The Digital Assets Subcommittee, a body in Congress, is scrutinizing the SEC’s increasing aggressiveness and style of “regulation by enforcement” against the crypto sector.

Brian Armstrong writes on CNBC this week:

U.K., Japan, and EU have all made significant progress to close gaps in existing EU financial services legislation by establishing a harmonized set of rules for crypto-assets… Yet while we see other jurisdictions progress, the U.S. seems more focused on turf battles between regulators. No other country in the world has spent as much time and energy trying to convince its citizens that crypto assets are securities. The U.S. is missing the forest for the trees.

To be continued…

Other news:

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

Published in Bankless

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