🧵1/Ω
ELI5: Why did #SilvergateBank / $SI just implode?
I realize some people may be wondering WTF just happened so here's the unannotated short version...
The story begins when $SI, a small regional bank, decided to go full crypto.
ELI5: Why did #SilvergateBank / $SI just implode?
I realize some people may be wondering WTF just happened so here's the unannotated short version...
The story begins when $SI, a small regional bank, decided to go full crypto.
🧵2/Ω
A bunch of crypto companies used $SI to hold user deposits, stablecoin backing, etc - $USD cash. As it got more crypto customers it grew - $SI went from being a small bank to a medium bank, holding IIRC ~$15 billion in customer deposits.
A bunch of crypto companies used $SI to hold user deposits, stablecoin backing, etc - $USD cash. As it got more crypto customers it grew - $SI went from being a small bank to a medium bank, holding IIRC ~$15 billion in customer deposits.
🧵3/Ω
Since it had all this cash around $SI execs decided to invest it in a very safe asset: US Treasury bills. Basically they loaned the government of the United States money in exchange for interest plus guarantee of getting it back in N years.
Since it had all this cash around $SI execs decided to invest it in a very safe asset: US Treasury bills. Basically they loaned the government of the United States money in exchange for interest plus guarantee of getting it back in N years.
🧵4/Ω
Example:
1. you put $100 in an $SI account
2. $SI takes yr $100 and buys a $100 T-bill at 1%
Now the government will give $SI $1 / yr for N-years¹ and then $100 back at the end of N-years.
¹ depending on if it's a 3 month T-bill, a 1 yr, a 10 yr, etc.
Example:
1. you put $100 in an $SI account
2. $SI takes yr $100 and buys a $100 T-bill at 1%
Now the government will give $SI $1 / yr for N-years¹ and then $100 back at the end of N-years.
¹ depending on if it's a 3 month T-bill, a 1 yr, a 10 yr, etc.
🧵5/Ω
Unfortunately $SI bought these treasury bills ("t-bills") at a period of historically low interest rates. So maybe they were earning 1% interest¹, as in the example.
They also (this is critical) bought long-duration t-bills. Say 10yrs.
¹ dunno the real # but it's low
Unfortunately $SI bought these treasury bills ("t-bills") at a period of historically low interest rates. So maybe they were earning 1% interest¹, as in the example.
They also (this is critical) bought long-duration t-bills. Say 10yrs.
¹ dunno the real # but it's low
🧵6/Ω
The problem is as the fed increases interest rates (and it has) people don't want the t-bills that only pay 1% any more. Why would they? They can go to the govt and get a fresh new T-bill that pays 4%.
The problem is as the fed increases interest rates (and it has) people don't want the t-bills that only pay 1% any more. Why would they? They can go to the govt and get a fresh new T-bill that pays 4%.
🧵7/Ω
This drives down the value of yr 1% t-bill if you have to sell it before the 10 years is up. Possibly by a lot. Maybe yr $100 / 1% T-bill is now worth only $90 on the bond mkt.
Of course if you don't have to sell it, no harm no foul bc in 10 years you get yr money back.
This drives down the value of yr 1% t-bill if you have to sell it before the 10 years is up. Possibly by a lot. Maybe yr $100 / 1% T-bill is now worth only $90 on the bond mkt.
Of course if you don't have to sell it, no harm no foul bc in 10 years you get yr money back.
🧵8/Ω
$SI's problem was the #FTXplosion.
All of a sudden people wanted their money back, and they had to sell their 1% T-bills on the bond market. They got completely fucking rekt on the trade, losing ~$1 billion in a month.
That was all $SI's profits back to 2014 - gone.
$SI's problem was the #FTXplosion.
All of a sudden people wanted their money back, and they had to sell their 1% T-bills on the bond market. They got completely fucking rekt on the trade, losing ~$1 billion in a month.
That was all $SI's profits back to 2014 - gone.
🧵9/Ω
Things got worse from there.
Banks are special in that what they are really selling is confidence - the confidence that if you give these people your money you will get it back.
This is why rumors about solvency are so damaging to banks, and now $SI had a lot of rumors.
Things got worse from there.
Banks are special in that what they are really selling is confidence - the confidence that if you give these people your money you will get it back.
This is why rumors about solvency are so damaging to banks, and now $SI had a lot of rumors.
🧵10/Ω
They were able to stave off disaster by taking out special government #FHLB loans meant originally to help poor people buy houses but that didn't last for reasons TBD.
They were able to stave off disaster by taking out special government #FHLB loans meant originally to help poor people buy houses but that didn't last for reasons TBD.
🧵11/Ω
This is oversimplified a bit but hopefully it's illuminating for some people.
If they had just bought 3 month treasuries they would be fine. But $SI is not run by smart people.
This is oversimplified a bit but hopefully it's illuminating for some people.
If they had just bought 3 month treasuries they would be fine. But $SI is not run by smart people.
https://twitter.com/Cryptadamist/status/1631558728506900480
🧵12/Ω
There are a whole lot of other issues with $SI facilitating the #FTXscam and being a hot bed for money laundering, but that's not ultimately what rekt them. What rekt them was the most powerful inexhaustible resource in the universe:
Stupidity.
There are a whole lot of other issues with $SI facilitating the #FTXscam and being a hot bed for money laundering, but that's not ultimately what rekt them. What rekt them was the most powerful inexhaustible resource in the universe:
Stupidity.
https://twitter.com/CryptoHayes/status/1631198804983816192
🧵13/Ω
So $SI fucked up bad.
The problem for the broader crypto economy, however, is that there were really only two banks of any size that were willing to deal with crypto companies: $SI and $SBNY.
So $SI fucked up bad.
The problem for the broader crypto economy, however, is that there were really only two banks of any size that were willing to deal with crypto companies: $SI and $SBNY.
🧵14/Ω
Between them they were a huge part of the crypto economy, which is denominated mostly in $USD.
Both $SI and $SBNY had built special not yet "bank-permissible" payment networks for their crypto clients. $SI's was called SEN, AKA "#TheWheelOfDoom", $SBNY's was #SigNET.
Between them they were a huge part of the crypto economy, which is denominated mostly in $USD.
Both $SI and $SBNY had built special not yet "bank-permissible" payment networks for their crypto clients. $SI's was called SEN, AKA "#TheWheelOfDoom", $SBNY's was #SigNET.
🧵15/Ω
As of the end of 2022 $SI's SEN was moving roughly $750 billion / year and $SBNY's #SigNET was moving ~$1 trillion¹ / year on these unapproved, probably illegal payment networks.
$1.75 trillion is roughly 15% of the global VISA payment network.
¹ with a "t"
As of the end of 2022 $SI's SEN was moving roughly $750 billion / year and $SBNY's #SigNET was moving ~$1 trillion¹ / year on these unapproved, probably illegal payment networks.
$1.75 trillion is roughly 15% of the global VISA payment network.
¹ with a "t"
🧵16/Ω
Suffice it to say these unapproved payment networks became hot beds for money laundering on a scale the human race has not seen. And I mean, ever. They dwarfed even #Wirecard. You can read more if you want 👇
cryptadamus.substack.com/p/signature-ba…
Suffice it to say these unapproved payment networks became hot beds for money laundering on a scale the human race has not seen. And I mean, ever. They dwarfed even #Wirecard. You can read more if you want 👇
cryptadamus.substack.com/p/signature-ba…
🧵17/Ω
Does it seem reasonable that 2 small / medium American banks are doing 15% of the txn volume Visa does in all countries in all currencies?
What if I told you they are doing 0.7% of all bank transfers?
In the world. Across every bank in ever country.
Does it seem reasonable that 2 small / medium American banks are doing 15% of the txn volume Visa does in all countries in all currencies?
What if I told you they are doing 0.7% of all bank transfers?
In the world. Across every bank in ever country.
🧵18/Ω
Because I can assure you it does not seem reasonable to banking regulators in the EU and United States, especially when a measurable volume of those transfers seem to end up in Iran and North Korea.
reuters.com/business/finan…
Because I can assure you it does not seem reasonable to banking regulators in the EU and United States, especially when a measurable volume of those transfers seem to end up in Iran and North Korea.
reuters.com/business/finan…
🧵19/Ω
And especially when $SI's anti-money laundering screening was so piss poor that they let #SBF
1. Use an #AlamedaResearch bank account for #FTX (this is a major no-no in banking)
2. Steal $9 billion from his customers.
And especially when $SI's anti-money laundering screening was so piss poor that they let #SBF
1. Use an #AlamedaResearch bank account for #FTX (this is a major no-no in banking)
2. Steal $9 billion from his customers.
🧵20/Ω
And $SBNY's anti-money laundering was so piss poor that they ended up allowing #Binance to bank with them under a shell company #KeyVisionDevelopment that was so shady the goddamn Seychelles kicked it off the island.
That is a real accomplishment.
And $SBNY's anti-money laundering was so piss poor that they ended up allowing #Binance to bank with them under a shell company #KeyVisionDevelopment that was so shady the goddamn Seychelles kicked it off the island.
That is a real accomplishment.
https://twitter.com/ExkrementKoin/status/1610065151943737345
🧵21/Ω
Either way, with the collapse of $SI, $750 billion per year in USD transfers between crypto exchanges just totally evaporated. So now it's all on #SignatureBank / $SBNY.
Either way, with the collapse of $SI, $750 billion per year in USD transfers between crypto exchanges just totally evaporated. So now it's all on #SignatureBank / $SBNY.
🧵22/Ω
$SBNY is not only bigger than $SI it's the only game left in town at this point for $USD/crypto
Which is why, if yr into crypto, you should be v concerned about what's happening at $SBNY.
For instance the founder of the bank just stepped down:
$SBNY is not only bigger than $SI it's the only game left in town at this point for $USD/crypto
Which is why, if yr into crypto, you should be v concerned about what's happening at $SBNY.
For instance the founder of the bank just stepped down:
https://twitter.com/Cryptadamist/status/1628606845991387138
🧵23/Ω
BTW if anyone was thinking that $SI and $SBNY moving 0.7% of the world's total money transfers was evidence of "adoption" let me just point out that that $1.75 trillion was only moved between crypto exchanges.
No one bought a pizza. No actual economic activity took place.
BTW if anyone was thinking that $SI and $SBNY moving 0.7% of the world's total money transfers was evidence of "adoption" let me just point out that that $1.75 trillion was only moved between crypto exchanges.
No one bought a pizza. No actual economic activity took place.
🧵24/Ω
There are many alarming things about $SBNY's business but chief among them is probably the fact that an absolutely incredible amount of the money in the bank is uninsured.
So if the bank goes... the money goes down w/the ship.
There are many alarming things about $SBNY's business but chief among them is probably the fact that an absolutely incredible amount of the money in the bank is uninsured.
So if the bank goes... the money goes down w/the ship.
https://twitter.com/Cryptadamist/status/1631147958572929029
🧵25/Ω
What is all that money?
Ask yourself who would put that much money at that much risk¹ and not even earn *any* interest?
¹ no reason to think $SBNY has issues (yet) but ANY risk is "a lot" of risk when we're talking about $90 billion
What is all that money?
Ask yourself who would put that much money at that much risk¹ and not even earn *any* interest?
¹ no reason to think $SBNY has issues (yet) but ANY risk is "a lot" of risk when we're talking about $90 billion
🧵26/Ω
Maybe someone who can't get any other bank to hold their money.
Someone like...
#Tether.
Maybe someone who can't get any other bank to hold their money.
Someone like...
#Tether.
https://twitter.com/Cryptadamist/status/1611236764332572672
🧵27/Ω
Anon, it is not for me to explain to you what happens to crypto if anything happens to $SBNY.
Because if there's even the faintest whiff of any kind of issue at the bank that now both holds and moves almost all of the fiat value in crypto...
Anon, it is not for me to explain to you what happens to crypto if anything happens to $SBNY.
Because if there's even the faintest whiff of any kind of issue at the bank that now both holds and moves almost all of the fiat value in crypto...
🧵28/Ω
p.s. today @WSJ published a story that should interest anyone who has an interest in $SBNY's continued health... Something about #Tether, Hamas¹, a shady "aviation fuel company" that doubles as a crypto trader, #Kraken...and $SBNY
¹ yes, that Hamas
wsj.com/articles/crypt…
p.s. today @WSJ published a story that should interest anyone who has an interest in $SBNY's continued health... Something about #Tether, Hamas¹, a shady "aviation fuel company" that doubles as a crypto trader, #Kraken...and $SBNY
¹ yes, that Hamas
wsj.com/articles/crypt…
🧵29/Ω
p.p.s. if you got this far, understand the treasuries were an example for ELI5. $SI held treasuries and other debt, the details of some of which are shown below.
the mechanics of "how u got rekt" tho - that works roughly the same way for all.
p.p.s. if you got this far, understand the treasuries were an example for ELI5. $SI held treasuries and other debt, the details of some of which are shown below.
the mechanics of "how u got rekt" tho - that works roughly the same way for all.
https://twitter.com/HappyHippoDefi/status/1631912110291836929
🧵30/Ω If you're somehow still here and want to know more about the gory details of what happened to $SI @Frances_Coppola has you covered.
Ω👇Ω
Ω👇Ω
https://twitter.com/Frances_Coppola/status/1633164769829040128
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