When Brian Armstrong was asked on Twitter if Coinbase could become a neo-bank, the exchange’s CEO replied that this is a possibility. In the face of the banking crisis, is this a solution to the problems that arise from it?
Coinbase is reportedly mulling the idea of becoming a neo-bank
With the current crisis in the banking sector, the solvency of some of these institutions is once again being questioned. As we have seen in recent days, these events have created contagions even in the cryptocurrency ecosystem. It is in this context, where Coinbase is also affected by the Signature Bank affair, that Ryan Lackey, head of security at crypto insurance company Evertas, challenged Brian Armstrong on Twitter to ask him if the exchange could consider becoming a sort of neobank:
Hey @brian_armstrong and @coinbase — after the SVB hell over the weekend, why don’t you set up Coinbase as some kind of HNW + business neobank, with the “pass through assets to community banks and treasuries” as a first-class option in parallel with crypto.
– Ryan Lackey (@octal) March 13, 2023
Coinbase’s CEO replied that this was an option, even asking for advice, and questioning the fractional reserve model that has caused liquidity crises for players currently in trouble:
“It’s certainly something we’ve been thinking about. […] Non-fractional reserve “banking” definitely looks more attractive at the moment. What are the main features you would like to see? “
Is this a possible area of development for Coinbase?
Among the few suggestions he was able to give, Ryan Lackey suggested, for example, that Coinbase could first address its services to other crypto professionals, especially as it was now a recognised player in the industry:
People already in crypto know/trust/love Coinbase, so that’s a natural market, but it might also make sense to pick some vertical at start which is super safe and positive-PR (charity/non-profit?) with easy banking needs.
– Ryan Lackey (@octal) March 13, 2023
The fact is that to date, no major crypto-native player aimed at retail investors provides banking services. This means that for the custody of fiat currency, platforms are forced to use trusted third parties, and using trusted third parties is in radical opposition to the original philosophy of crypto-currencies like Bitcoin (BTC).
The danger of this reliance on trusted third parties is an issue that is also found among issuers of centralised stablecoins, as evidenced by the loss of the USDC’s dollar peg this weekend due to the failure of Silicon Valley Bank.
While there is no certainty that Coinbase will or will not become a neo-bank one day, it is likely that this crisis in the banking sector will give ideas to players in our ecosystem, and that this theme can be developed in the years to come.
