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The Fed Issues An Enforcement Against Evolve Bank

The Fed Issues An Enforcement Against Evolve Bank

Jun 14, 2024
Marty's Ƀent

The Fed Issues An Enforcement Against Evolve Bank

Here's something that should be on your radar heading into the weekend; earlier today the Fed issued an enforcement action against Evolve Bancorp Inc. and Evolve Bank & Trust for "deficiencies in the bank's anti-money laundering, risk management and consumer compliance programs. This enforcement action stems from the bankruptcy of the banking-as-a-service company Synapse, which was utilized by a number of prominent fintech firms.

Over 100,000 users of many fintech apps have been frozen out of funds totaling $265m since early May. Not an ideal scenario. To make matters worse, as the bankruptcy proceeding of Synapse have progressed an $85m discrepancy between the money Synapse customers are owed and the amount of money Evolve has in deposits for Synapse, which is $180m. Over the course of the last few months Synapse and Evolve have been engaged of a shit throwing war with each party blaming the other for the missing funds.

As it stands right now, it is not really clear to me who is in the wrong in this particular case and whether or not an $85m shortfall at Evolve would lead to a systemic issue for the bank. The one thing I do know, however, is that Evolve is the back end for Mercury, a neo-bank coming out of Silicon Valley that provides banking service to a number of prominent Silicon Valley startups and many bitcoin and crypto companies. They were one of the biggest beneficiaries of the Silicon Valley Bank liquidity crisis last year. Mercury is our bank at TFTC.

The Fed's actions today are not confidence inducing and may signal that the central bank is making moves to stomp out the banking-as-a-service wave that has been building for years. Banking-as-a-service companies have attempted to fill the gap created by incumbent banks who have refused to improve their UX/UI, customer service, and provide product innovation that individuals and companies deserve in 2024.

Perhaps the situation developing between Evolve and Synapse has provided the Fed with an opportunity to step in and send this sector of the neo-bank industry a message that they better get in line.

If Evolve Bank proves to be short customer deposits it could be very bad for the startup industry. A mini SVB may be on our hands. It will be interesting to see if it proves to be systemic for the banking system overall. Could a small domino set up a massive cascading crisis? Time will tell.

Regardless of what happens between Evolve and Synapse and whether or not Evolve proves to be solvent or not, this is yet another reminder that every company should be holding a significant portion of their corporate treasury in bitcoin in case shit hits the fan and access to your banking infrastructure gets cut off. Having three to six months of runway stored in bitcoin at any given point in time should be the bare minimum. This will allow you to make payroll and seek sanctuary in an asset that is completely outside the confines of the banking system (if held in self custody).

Be aware, freaks!

Final thought...

Hitting Asbury Park for the first time tomorrow. Pretty pumped.

Enjoy your weekend, freaks.

Use the code "TFTC" for 15% off


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