Driving financial inclusion is one of crypto’s strongest value propositions. Yet, ironically, the banking crisis effectively debanked the crypto industry itself, at least in the United States.
How things turned out with Silvergate, Silicon Valley Bank and Signature – the three crypto-friendly US banks – smacks of what Nic Carter called “Operation Chokepoint 2.0.” There is good merit to this claim, although naysayers take the conspiracy theory allegations with a lot of harshness.
For example, Signature has not suffered a bank run. The Federal Deposit Insurance Corporation took over the bank in no time. In fact, anonymous sources claimed that the FDIC had claimed that any buyer “must agree to give up all crypto activity,” though the agency retracted those claims.
Crypto not only has the resilience, but also the tools to fight back – using stablecoins to minimize dependence on banks. In addition to solving an immediate crisis, it can also form the basis for establishing crypto as a self-sufficient and parallel financial system. After all, that was Satoshi’s vision.
US regulators are shooting themselves in the foot
There’s a reason why most regulators — except in some progressive jurisdictions — have their guns on crypto. Their power rests on the toxic relationship between governments, money printers, big corporations and oligopolies masquerading as banking systems. The non-intermediary, permissionless, and autonomous systems that crypto enables threaten this anti-individual cohesion to its very core.
Our journey to a more equitable, individual-centered world of crypto was never intended to be an easy one. The hyper-aggressive response from the regulators is also quite in line with expectations. But somehow the authorities, especially in the US, don’t seem to realize that their actions are self-destructive.
Related: Did regulators deliberately cause a run on banks?
Technological advancements have been crucial in bringing the US to its current dominant position in global geopolitics. Emerging crypto-based technologies enabled the following Big step in this direction. And if regulators could only overcome their short-term greed for power and control, they would see how stifling innovation is not in their best interests.
For example, the ongoing banking crisis, largely due to misguided policies and selective enforcement, is ultimately damaging financial stability in the United States. Furthermore, if it is indeed a concerted effort to de-bank the crypto industry, the average US taxpayer will bear the brunt of the brunt, despite remaining within legal bounds.
Some projects have found a scalable way to help crypto companies become regulated institutions — such as Archblock, which is onboarding US-based community banks to expand on-chain “real-world asset” financing for regulated entities.
While this approach could ultimately resolve some regulatory issues, a significant portion of the global crypto community is looking for more radical solutions.
Crypto companies don’t need banks if they have stablecoins
Stablecoins have come under scrutiny since Terra’s “algorithmic” coin, TerraUSD (renamed TerraClassicUSD), crashed last year, triggering a chain of events that led in part to the FTX fiasco. The crash destroyed a $40 billion ecosystem, but it also served as valuable lessons in due diligence, overexposure, and risk management.
Something like Operation Chokepoint 2.0, actual or hypothetical, is possible because crypto companies and investors use banks as entry or exit ramps. There are practical reasons for this choice: for example, one cannot buy crypto with cash and must pay with US dollars from his bank account. Even if they use an exchange, they require wire transfers to deposit fiat.
Related: Thanks to CBDCs, the world could face a dark future
However, involving banks so much is not necessary. Stablecoins can provide the fiat tokenization services that crypto companies depend on banks for with great risk and desperation. The process is not decentralized, but neither is banking. This is not about decentralization as the goal is to connect centralized and decentralized funding while minimizing counterparty risks.
Former CEO of BitMEX, Arthur Hayes, published a richly informative blog on the subject in March, presenting a detailed argument for favoring stablecoins over banks. Most importantly, he proposed an innovative stablecoin model, which he called the Satoshi Nakamoto Dollar or NakaDollar (NUSD). The idea is to use Bitcoin (BTC) and inverse perpetual swaps so that NUSD does not involve banks in the issuance or redemption process.
Proposals like NUSD are signs of our collective willingness to fight back in the face of regulatory uncertainty and aggressive attacks. As crypto evolves, there will be fewer attack surfaces for regulators and we will have more robust alternatives to legacy systems.
Innovation is not just a business model, it is our greatest strength. And it is through innovation that crypto will overcome all hurdles. The show must go on, because future generations deserve a better world.
Sarah Austin is the co-founder of QGlobe Games, a Steam modeled crypto gaming platform. She was the founding CMO of Kava Labs, the founding CEO of Pop17.com, and the original community builder for Twitch. She graduated from Dominican University of California before earning a data science certification from John Hopkins University.
This article is for general information purposes and is not intended to and should not be construed as legal or investment advice. The views, thoughts and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.