BlockByBlock | 190 Banks At Risk Of Failure
The UAE improves blockchain relationships with South Korea and India. Nuqtah raises capital from Animoca Brands. MYFC, Staynex and Casper Labs win awards. Paper shows 190 banks at the risk of failure.
In This Week’s Issue
⚡ The DMCC signs two memorandums of understanding (MOUs) with KBIPA and Seongnam City, two prominent South Korean entities in the blockchain and metaverse sectors.
💸 Nuqtah, the first NFT marketplace platform in Saudi Arabia, completes a seed funding round led by Animoca Brands, Polygon and regional investors.
🔴 MYFC, Staynex and Casper Labs win 1st, 2nd and 3rd place at AgoraGroup’s “Most Likely To Be Funded” awards.
⚠️WARNING: An academic paper inspecting the U.S. banking system’s fragility finds that “almost 190 banks are at a potential risk of impairment to insured depositors.”
Local Developments
Blockchain Movements In The GCC 👇
The DMCC signs two memorandums of understanding (MOUs) with KBIPA and Seongnam City, two prominent South Korean entities in the blockchain and metaverse sectors.
The Central Bank of the UAE signs an MOU with the Reserve Bank of India to collaborate on the release of respective central bank digital currencies (CBDCs).
Nuqtah, the first NFT marketplace platform in Saudi Arabia, completes a seed funding round led by Animoca Brands, Polygon and regional investors.
“Our investment into Nuqtah is another meaningful step in our commitment to build up the Web3 industry in the Middle East and North Africa (MENA) as well as develop our own capabilities in the region,” said Yat Siu, the executive chairman and co-founder of Animoca Brands.
Key Industry Development
Silicon Valley Bank (SVB): More Blood On The Way? 🩸
An academic paper released by economists at Stanford, Columbia and others concludes that “10% of banks have larger unrecognized losses than those at SVB,” leaving up to 190 banks at the “potential risk of impairment to insured depositors, with potentially $300 billion of insured deposits at risk.”
The paper inspected the impact of rising interest rates on the banking system’s assets and stability. It estimates that the “U.S. banking system’s market value of assets is $2 trillion lower than suggested by their book value.”
In short, this means that most banks have much larger [unrealized] losses than it appears on their balance sheets. This discrepancy is facilitated by an accounting loophole, which allows banks to shift bonds from one internal accounting category to another (specifically, from “available for sale” to “held until maturity”).
The paper summarizes why these losses, combined with a loss of faith from uninsured depositors, could trigger more bank runs:
Unlike insured depositors, uninsured depositors stand to lose a part of their deposits if the bank fails, potentially giving them incentives to run. A case study of the recently failed Silicon Valley Bank (SVB) is illustrative. 10 percent of banks have larger unrecognized losses than those at SVB.
“Combined, losses and uninsured leverage provide incentives for an SVB uninsured depositor run. We compute similar incentives for the sample of all U.S. banks.”
Even if only half of uninsured depositors decide to withdraw, almost 190 banks are at a potential risk of impairment to insured depositors, with potentially $300 billion of insured deposits at risk.
“If uninsured deposit withdrawals cause even small fire sales, substantially more banks are at risk. Overall, these calculations suggest that recent declines in bank asset values very significantly increased the fragility of the US banking system to uninsured depositor runs.”
Read the paper in full here.
Updates From The Startup Ecosystem 💸
AgoraGroup’s “Most Likely To Be Funded Awards” 🏆
At the most recent Global Blockchain Congress, the AgoraGroup team asked attending funds and VCs which of the 18 blockchain projects in attendance were “most likely to be funded.”
The winners included:
MYFC, a technology platform where fans get a voice and have direct influence on their favourite sports and esports organisations.
Staynex, an NFT vacation marketplace that can assist you in coming up with your own NFTs for real estate or vacation projects.
Casper Labs, a blockchain company providing enterprise-grade software and professional services to organizations building on the Casper Blockchain.
Congratulations to the participating projects!
Blockchain Trends
Global Trends 📉
An academic paper inspecting the U.S. banking system’s fragility finds that “almost 190 banks are at a potential risk of impairment to insured depositors.”
The New York Department of Financial Services closes down the crypto-friendly Signature Bank due to “failing to provide consistent and reliable data” on its operations.
Bitcoin’s market capitalization surpasses that of Meta Platforms. Inc following the SVB crisis.
Former Coinbase CTO makes a $2 million bet on Bitcoin’s performance.
Upcoming Events
Blockchain Events By AgoraGroup 🔴
The Global Blockchain Congress will be hosted by AgoraGroup in London, England, on June 19th and 20th, 2023.
Blockchain Events Across The UAE 🔵
Blockchain Economy will be hosted between October 2nd to October 5th in Dubai, the UAE.
The Future Blockchain Summit will be hosted between October 17th and October 20th in Dubai, the UAE.