SVB Fails, How Bad Is It?
Mark Kennedy & Manuel Olumorin
March 13, 2023
GM GM. If you already aged 12 years during this weekend, it's Lootbox here bringing you the elixir of youth.
For today
- SVB Fails, and others caught the first contagion
- Degen Zoo rises from the ashes of Crypto Zoo
- The Sneakies - Pokemons as NFTs???
SVB Fails, How Bad Is It?
Surviving this decade be like...
First Covid, then the long list of crypto blow-ups. Now, 3 banks have gone down in less than a week. Silicon Valley Bank, Signature Bank, and Silvergate Capital. RIP 🪦
Let's take a moment to acknowledge that inverse Jim Cramer struck again as 2 of these banks (Silicon Valley Bank and Signature Bank) got the kiss of death.
Here's a clip for Silicon Valley Bank before it went under
Now that's settled, let's get to the biggest bank failure since 2008 - Silicon Valley Bank.
Who's Silicon Valley Bank (SVB)
As the name suggests, it's a bank in Silicon Valley that supports the innovation economy. By their admission, they support about half of the VCs and startups in tech and life sciences.
What happened
- On Wednesday, SVB announced they would be raising $2B to strengthen their financial position.
- This set off a sell-off of its stocks by Thursday morning, and a divide began to take shape at the valley, with some founders and VCs choosing to exit the bank and others choosing to support the bank.
- By Friday, $42B in deposits was withdrawn. Talk about a stampede 🏃♀️🏃♂️💨
- This drove the FDIC to step in to take over the bank. Bye bye SVB
- Crypto got hit hard... as USDC depegged when people found out Circle had $3.3B in deposits in SVB. Circle went on to block withdrawals to FIAT currencies. DAI and USDD also depegged.
- The Canadian and UK subsidiaries also got taken over by their versions of FDIC. Although, the UK subsidiary has been acquired by HSBC for a whopping $1.21. Big numbers here 🤣
What caused the bank to fail
Two things, apparently.
- Concentration risk: Most of SVB's customer base are in the tech industry, which has been taking a beating this year. As startups withdrew more of their deposits, SVB wasn't getting new deposits from other sources. The net effect meant SVB had more withdrawals than expected without enough cash on hand to fulfil those deposits.
- That brings us to the second, rising interest rates. Between 2020 and 2021, SVB saw massive growth in deposits as many tech businesses soured. Some of these deposits were put into T-bills to get interest on the money (typical practice for banks). Where things get mucky is they put the money in long-term T-bills. As the feds raised interest rates, all those bills went below their original value, leading the bank to take a loss on those deposits.
Some questionable things
It got revealed that executives were selling off some of their stock holdings 2 weeks before, and employees got bonuses hours before the bank was taken over by the FDIC. This might be standard practice for them, but some people aren't having it.
Some news sources also revealed that SVB had lobbied the regulators 3 years ago to increase the threshold that triggers the enhanced prudential standards for banks from $50B to $250B in deposits. The enhanced standard might have actually saved them.
The good news...
The government stepped in to guarantee customer deposits, so it's safe for now. USDC and other stablecoins have also returned to their peg. 😮💨
The not-so-good news...
3 of the big crypto-friendly banks just bit the dust, and governments are placing pressure on banks not to work with crypto. It going to be more challenging to find a bank to work with now.
Curious about US banks that have failed since 2000? Here's the list from the FDIC.
Degen Zoo Rises From Ashes Of Crypto Zoo
Remember when YouTuber Logan Paul launched his Crypto Zoo NFT project, only to rug-pull participants and leave them feeling scammed?
Well, DAO Maker founder Christoph Zaknun has taken on the challenge of creating his own version of the shelved game called Degen Zoo.
🎉 Day 60: World Record IDO
Over 115,000 Wallets joined our IDO!
54k wallets had between $500 - $2000
2000 wallets had between 50k - 250k!
Over 50 wallets with +1M$!The total value of all wallets exceeded $700M USD!
— Degen Zoo (@Degen_Zoo)
Mar 6, 2023
Let's rewind ⏮️
In August 2021, Logan Paul announced a project called Crypto Zoo, which involved buying NFT eggs that would supposedly hatch into animals, allowing owners to earn passive income through zoo tokens.
The project reportedly raised over $3 million in NFT sales and tens of millions in zoo tokens. However, the project failed to deliver as promised, leaving many participants feeling that they had been rug pulled by the influencer.
Two months ago, self-proclaimed “internet detective exposing scams” Coffeezilla published a series of exposés investigating and exposing Logan Paul’s NFT project that never was. In the YouTube videos, investors in the game claimed to have lost hundreds of thousands of dollars.
What we know about Degen Zoo
- Inspired by Crypto Zoo, which critics have called a “scam,” Christoph Zaknun’s "Degen Zoo” game simulates the impact of capitalism on animal extinction, featuring a deflationary token and an NFT collection of 120 endangered species.
- Players are motivated to “kill" their NFT, driving the collection to extinction and raising awareness of the devastating effects of human greed on wildlife.
- Despite the failures of Crypto Zoo, Degen Zoo has seen more than 115,000 wallets register to join the game, with pledges of over $700 million.
- Christoph Zaknun took on the challenge of building his variant of the shelved zoo-themed game in just 30 days, and his decision to broadcast daily updates of his progress has garnered interest from over 250,000 people.
- More than 30,000 testnet transactions were initiated by 3,000 players within days of the first testnet release.
- Zaknun has pledged to donate all profits from Degen Zoo to charity.
What about Logan Paul?
Logan Paul has faced backlash for failing to deliver on the promises of his Crypto Zoo project, and a recent class-action lawsuit has accused him and Crypto Zoo executives of stealing millions of dollars worth of cryptocurrency from purchasers through a fraudulent scheme.
The lawsuit was filed on Feb. 2 in the Western District of Texas, with the plaintiff Don Holland alleging that Paul and Crypto Zoo executives promised exclusive access to crypto assets and other benefits but instead absconded with the funds.
We have officially filed a class action lawsuit in the Western District of Texas against Logan Paul et al. for the CryptoZoo fiasco. (This is in addition to the numerous cases heading to arbitration on the matter.)
— AttorneyTom (@attorney_tom)
Feb 2, 2023
Lootbringer's take
It is good to see that Degen Zoo has made whole some of the ideals of the original project, and Zaknun's decision to donate all profits to charity is admirable.
The Sneakies
- EdgeGap partners with ZEBEDEE to bring Bitcoin transactions to multi-player games.
- Curve Finance smashed trading records with $7B in daily volume as SVB Collapse sparks market chaos and USDC depegging.
- Aavegotchi closes bonding curve as DAI depreciates amid Silicon Valley Bank fallout.
- The Pokemon company may be exploring the web3 space as they place a job ad for an NFT position, and now some Pokemon fans are scared.
- It's dangerous out there sometimes. According to the FBI, hackers are using fake P2E games to steal people's crypto.
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