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Newsletter of March 2023
At the beginning of March, the tremors do not weaken in the world of crypto-assets and Web3. Latest: the succession of bank failures close to the tech community (including crypto and Web3): Silvergate, Silicon Valley Bank (SVB) and Signature. The bankruptcy of SVB, the 16th largest institution in the United States in terms of assets under management, has put a strain on Circle, the issuer of the second largest stablecoin dollar: the USDC. Why? For USDC collateralization purposes, Circle held more than $3.3 billion in reserves with SVB (less than 10% of its reserves). Doubt was cast on the status of Circle’s collateral, which led to a loss of stablecoin parity for several consecutive days and the suspension of USDC conversions by some major platforms. At the time of writing, the USDC is worth $1 again and Circle has recovered the funds deposited with SVB. Let’s salute Circle’s transparency over the last few days, as well as the pragmatism of their management (due in particular to an appropriate diversification of their deposits with six institutions).
Beyond the dramatic consequences for employees of banks and start-ups exposed to them, the fall of the “3S” – one of whose common denominators was their support for the development of American tech players – raises many questions within the crypto-asset markets and the decentralized web economy in general.
On the one hand, the tightening of monetary policy by the US Federal Reserve (Fed), which is putting the banking system across the Atlantic under strain, brings back some bad memories, although comparisons with the 2008 crisis are limited. The major rescue plan announced by the American authorities confirms that the practice of bail-in remains, fifteen years later, a solution to make up for the mismanagement of banking institutions (with the consequences that we know). It is useful to recall that the origins of Bitcoin are rooted in the denunciation of the “bailout for banks” (from its genesis block) in 2009, and the need for individuals to be autonomous from the banking system by returning ownership and control of their assets to their own hands.
On the other hand, and as I had the opportunity to express a few weeks ago for Les Echos: while questions are crystallizing on the systemic risk that crypto-asset markets and decentralized finance could eventually pose for the traditional banking and financial system, is passed under silence (until today) the risk – already real and substantial – of the “too big to fail” institutions in place vis-à-vis the new crypto players. This risk finds its foundations in several pitfalls. The inevitable dependence of centralized stablecoins on the banking industry. The spread of difficulties to decentralized stablecoins guaranteed by these centralized stablecoins. The lack of alternatives because even today – and even more so on our side of the Atlantic – there are few tech-friendly (let alone crypto-friendly) banks to which start-ups and small businesses can turn to open an account, get financed, and thus grow: in addition to hampering innovation, the limited diversification of banking partners concentrates the risks for the crypto sector when one of them runs into trouble. Another healthy reminder: the crypto industry, too, needs to be protected. This is a problem that the traditional banking system poses for crypto, not the other way around.
A few days after these events, we should remain vigilant and cautious about how this situation will develop, and the possible contagion to other banking and crypto players. Indeed, we cannot rule out that other banks are more fragile than we think, and the crypto markets are currently licking their wounds after the panic and liquidations caused by the USDC depeg. A further setback to the development of our industry? Let’s hope not.
Because Europe could seize the situation to strengthen its position in the international innovation race and its attractiveness to foreign companies with global reach. In particular, if the dollar stablecoin ecosystem is threatened, is this not an opportunity to regain control and counter their hegemony by encouraging the strengthening of the European euro stablecoin ecosystem? For the benefit of our jobs and our sovereignty. There is no need for regulation here, but for ambition.
Market shocks do not affect Adan’s work, which you can read again this month in this new newsletter. You can also find all the opportunities to come and meet us in March: PBW, Virtuality Web 3 Summit, FD3