In the wake of crypto-friendly banks collapsing in the United States, digital asset firms are increasingly looking for offshore account alternatives for their cash reserves as the banking crisis deepens in the US. In one of the latest instances, Archblock, the operator of the world’s fifth-largest stablecoin, TrueUSD, transferred $1 billion in reserves to an offshore account with Capital Union Bank in the Bahamas.
Previously, on March 10, the amount held in Archblock’s offshore account was $438 million. The shift began when Signature Bank, Archblock’s largest banking partner based in New York, was abruptly closed by US regulators two days later. The company no longer has any money with Signature Bank.
The Offshore Account Lifeline
The sudden closure of three banks in quick succession—Silvergate Bank, Silicon Valley Bank, and Signature Bank—has left many digital asset companies scrambling to find new solutions for parking their cash and facilitating client fund transfers.
An independent accounting firm’s real-time attestation revealed on Wednesday that Archblock manages approximately $2 billion in reserves supporting its TrueUSD stablecoin, and now holds more than $1.4 billion in an offshore account with Nassau-based Capital Union Bank.
“We moved money to Capital Union Bank mainly to secure funds as we are able to go straight into very short-term US Treasuries, which in itself is funny,” said, Alex de Lorraine, Archblock’s chief financial and operating officer said. “The funds are with the US, but we need to use an offshore bank to achieve that.”
Seeking Stability: Crypto Firms Turn to Offshore Account
Capital Union Bank is a well-known partner for crypto businesses, offering clients the ability to deposit and transact digital assets within the same account as traditional currencies or assets. The bank is also one of the banking partners for stablecoin issuer Tether Holdings Ltd.
Tether has held some reserves at Bahamas bank Capital Union https://t.co/g8lAkrjtUB
— Financial Times (@FT) May 30, 2022
“The failure of the recent banks just highlights the concentration risk that was created by lack of clear regulations,” said de Lorraine. “I doubt you would have seen anything like the turmoil in the last 72 hours if companies like ours would have been allowed to bank with Citi or JPMorgan.”
According to the COO, the decision to move funds to an offshore account with Capital Union Bank was prompted by worsening banking conditions for crypto businesses in the US.
“Even operational accounts to just pay taxes, administer payroll and pay expenses are very difficult to get if one is not a multibillion-dollar business,” said, de Lorraine, in a message late Tuesday.
The crisis has also affected Circle Internet Financial Ltd., another stablecoin operator, which saw its USD Coin token temporarily lose its dollar peg after revealing it had $3.3 billion deposited with Silicon Valley Bank.
Navigating the Regulatory Waves with Offshore Accounts
The rise of digital assets and blockchain technology has fueled the growth of stablecoins. These digital tokens are designed to maintain a 1-to-1 value with a less volatile asset like the US dollar by holding substantial reserves of cash and cash-equivalent assets as collateral. Stablecoins play a crucial role in the crypto sector, providing liquidity, reducing volatility, and facilitating fund transfers between exchanges.
However, the growing popularity of stablecoins has also raised concerns about their regulatory framework and the supporting banking system. The shutdown of FTX in November highlighted these issues, as many of the group’s activities were carried out through an offshore account in the Bahamas.
Pat Toomey, about the FTX fallout, has said: "The failure of Congress, and regulators to provide clarity, has driven offshore activity… This is the outrageous behaviour of one individual." pic.twitter.com/AlaVzNzfsA
— unusual_whales (@unusual_whales) December 5, 2022
US regulators have voiced their concerns about stablecoin growth and its potential impact on the financial system. These largely unregulated assets operate outside the traditional banking system, raising questions about their stability and security.
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