The challenger bank Dave dodged a bullet.
The Los Angeles-based neobank was planning to work with the cryptocurrency exchange FTX,
"What's happened with them has clearly put under serious review our plans for crypto in general," Wilk said in an interview last week. "I think crypto has taken a big step back in the trust category over the past few weeks."
In hindsight, the Dave team was lucky. Several other fintechs and banks were connected to the Bahamas-based cryptocurrency exchange, which, along with several affiliates including Alameda Research, filed for bankruptcy on Nov. 11.
Silvergate Capital, the La Jolla, California, bank that
"As a federally regulated banking institution that is well capitalized, we maintain a strong balance sheet with ample liquidity to support our customers' needs," CEO Alan Lane said in the statement.
Silvergate also holds $20 million in deposits for BlockFi, a crypto lender that loaned money to and received money from FTX and filed for bankruptcy Monday. Silvergate maintains a first priority lien and security interest in a cash collateral account that contains $10 million for the benefit of Silvergate to support ACH services provided to BlockFi, the bank stated in a press release Monday.
"Silvergate's platform was purpose-built to manage stress and volatility," Lane said in the release. Silvergate declined a request for an interview.
Another company caught unawares by the FTX mess is FBH Corp. and its fully owned subsidiary Farmington State Bank, which does business as Moonstone Bank; both are based in Bellevue, Washington.
Moonstone announced in early February that Alameda Research Ventures had made a passive capital investment of $11.5 million in the common stock of the bank's holding company, FBH Corp. Alameda was and remains a minority (less than 10%) investor. The bank used the funds for operating capital to help in the transformation of Farmington State Bank from solely a small agriculture-focused, one-branch community bank in eastern Washington into a digital commercial bank, executives at the bank said. Alameda has a non-controlling interest in Moonstone, with no board membership and no involvement with management, they said.
Banks weren't alone in misjudging FTX and Sam Bankman-Fried, or in failing to conduct adequate due diligence on his operation, noted Todd Baker, a senior fellow at the Richman Center for Business, Law and Public Policy at Columbia University and managing principal at Broadmoor Consulting.
"He clearly had an engaging personality and a persona geared to the zeitgeist around crypto as the future of finance," Baker said. "We live in an age that worships billionaire capitalists like Elon Musk, Jeff Bezos, Mark Zuckerberg, Jack Dorsey, Bill Gates and even Warren Buffett. That allows wanna-be billionaires like Sam Bankman-Fried, Adam Neuman, Markus Braun and Elizabeth Holmes to take advantage of that image and avoid the scrutiny that would be applied to any normal company."
Getting the shocking news
Like most everyone — including major banks, investment bankers, and even U.S. government agencies — Praful Mainker's reaction to FTX's collapse was shock and dismay.
"The implications are far-reaching," said Mainker, chief risk and compliance officer at Moonstone Bank. "It is too early to speculate with any degree of accuracy as to what effect the collapse of FTX and its affiliates will have on the industry. There has been immediate harm to FTX customers and that will affect confidence in the crypto industry, or certainly the unregulated crypto industry, as an avenue of private investment."
Wilk and his colleagues at Dave were also surprised by the news that FTX and sister company Alameda Research had reportedly made risky bets with customers' money and didn't follow standard accounting practices.
Wilk met Bankman-Fried, FTX's chief executive, through investor and mentor Mark Cuban in 2021. Wilk and some of his colleagues had visited Bankman-Fried in the Bahamas.
"We were trying to find investors for our" special purpose acquisition company, Wilk said. Alameda Research invested $15 million in Dave "just because Sam really liked the business and because of the altruistic overlap. We have a charitable component of Dave given our partnership with Feeding America."
At that time, Bankman-Fried seemed to be running his company in a manner that didn't raise red flags, Wilk said.
Dave and FTX never made detailed plans about how they were going to work together. But Wilk said he was most interested in offering crypto rewards.
"I never saw Dave as a destination to be a Coinbase competitor or something along those lines," Wilk said. "So even if we had launched, I didn't anticipate customer assets being at risk, given it was mostly going to be a way for people to earn into the asset class for free versus having anyone trying to put up any of their money given we know our customers are largely living paycheck to paycheck."
In Wilk's view, Bankman-Fried started FTX with good intent.
"I had several conversations with him and he seemed incredibly smart," Wilk said. "He seemed incredibly empathetic to wanting to really democratize the world of finance. I think where
At Dave, any new crypto features are on pause until the company finishes its review, Wilk said.
