BlockByBlock | The First Bank Run Since 08'
One of the largest banks in America collapses. A UAE sovereign wealth fund purchases Sequoia Capital for $45 million. A UAE-based NFT startup raises $1.3 million.
In This Week’s Issue
⚡ Abu-Dhabi-based sovereign wealth fund Al Nawwar purchases the remaining interest of Alameda Research in Sequoia Capital for $45 million.
💸 nealthy, a UAE-based startup specializing in NFTs and cryptocurrency, raises $1.3 million in pre-seed funding.
🚀 MENA startups raised $760 million in February 2023, a seven-fold increase in total amount raised and a two-fold increase in the number of deals sealed over the prior month.
💥 EXLCUSIVE: How Silicon Valley Bank Collapsed & What It Means For The World
Local Developments
Blockchain Movements In The GCC 👇
Abu-Dhabi-based sovereign wealth fund Al Nawwar purchases the remaining interest of Alameda Research in Sequoia Capital for $45 million.
InfoDriver Capital, a UK-based investment company, launches a $10 million fund for DeFi, GameFi and AI startups and targets UAE startups.
The Qatari government pilots the use of blockchain technology for digital signatures and certificates via Genesis Technologies.
“Over 130 certificates were issued, signed, and registered on Genesis blockchain network. Our team at Genesis Technologies LLC is happy and proud to support such national initiatives,” said Genesis Cofounder Mazen El Masri in a Linkedin post.
Key Industry Development
Silicon Valley Bank: The Fall & The Repercussions 🗣️
On March 10, 2023, Silicon Valley Bank (SVB), California’s largest bank in terms of deposits and the sixteenth-largest bank in the U.S., collapsed.
𝐓𝐡𝐞 𝐜𝐨𝐥𝐥𝐚𝐩𝐬𝐞 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐬 𝐭𝐡𝐞 𝐛𝐢𝐠𝐠𝐞𝐬𝐭 𝐛𝐚𝐧𝐤𝐢𝐧𝐠 𝐟𝐚𝐢𝐥𝐮𝐫𝐞 𝐬𝐢𝐧𝐜𝐞 𝐭𝐡𝐞 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐜𝐫𝐢𝐬𝐢𝐬 𝐢𝐧 𝟐𝟎𝟎𝟖 𝐚𝐧𝐝 𝐭𝐡𝐞 𝐬𝐞𝐜𝐨𝐧𝐝-𝐥𝐚𝐫𝐠𝐞𝐬𝐭 𝐛𝐚𝐧𝐤 𝐟𝐚𝐢𝐥𝐮𝐫𝐞 𝐢𝐧 𝐀𝐦𝐞𝐫𝐢𝐜𝐚𝐧 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐡𝐢𝐬𝐭𝐨𝐫𝐲.
Understanding how SVB occurred requires some background information.
Before March. 26, 2020, the U.S. financial system was based on fractional reserve banking. Fractional reserve banking is a system that forced banks to leave a percentage of customer deposits “untouched.” The remainder could be used for income-generating activities like issuing loans or purchasing assets.
On March. 25, 2020, the Board of Governors of the Federal Reserve System announced that the U.S. banking system would no longer follow the fractional reserve banking system. Banks could now do whatever they want with all client deposits.
To cope with lowered interest in loans during the pandemic, SVB leveraged the dilution of the federal reserve banking system to purchase bonds with customer deposits. Bonds react poorly to rising interest rates, losing value as rates rise. Over the last 1.5 years, the Federal Reserve has consistently raised the interest rate, causing extreme deterioration in SVB’s bonds.
On March 9th, 2023, Peter Thiel’s Founders Fund advised its portfolio companies to remove their money from the bank. By the next day, $42 billion in deposits had left the bank. With most of their clients’ deposits lost in bond purchases, SVB was unable to meet its short-term liabilities (i.e. customer withdrawals). March 10th, 2023 marked the end of SVB. The bank officially failed and was taken over by the Federal Deposit Insurance Corporation (FIDC).
The FIDC insures clients holding less than $250,000 in SVB, helping soften the blow to some operators. The problem: A lot of SVB’s clients were BIG. SVB was the bank of choice for 44% of U.S. venture-backed tech companies. Some high-profile companies include: Circle, BlockFi, Pantera, Avalanche, Yuga Labs, Proof, Nova Labs, Paxos, Crypto.com, Binance, Kraken, Dapper Labs, Tether and Polygon.
These clients are uninsured by the FIDC, as their accounts are larger than $250,000. As such, all their cash deposits tied in SVB will be locked and unavailable for use. Cash is a business’s most liquid asset; it’s necessary for the issuing of salaries, purchase of inventory and other essential business activities.
SVB’s collapse puts many tech firms in risk of layoffs, losses and bankruptcy. The list of companies listed above is a mere sample of the total number of tech firms impacted. Additionally, we do not yet know the impact on non-tech firms who may have had exposure to SVB.
Without intervention, pain is undoubtedly on the way.
Updates From The Startup Ecosystem 💸
Updates From The Startup Ecosystem 💸
nealthy, a UAE-based startup specializing in NFTs and cryptocurrency, raises $1.3 million in pre-seed funding.
Nexo, a UK-based crypto lender with 5 million users, announces it will expand to Dubai and hire 150 employees.
GCEX, a global digital asset brokerage and trading platform, receives a minimal viable product license from VARA.
Blockchain Trends
Global Trends 📉
Circle, the issuer of the stablecoin USDC, says it will use “corporate resources” to cover the shortfall on its reserves following SVB’s shutdown.
The United States Federal Deposit Insurance Corporation (FDIC) launches an auction process for SVB assets in hope of raising enough liquidity to pay back depositors before Monday.
Janet Yallen, the Treasury Secretary of the U.S., rules out a bailout for SVB, leaving the fate of SVB creditors in the hands of private investors and institutions.
Local Trends 📈
MENA startups raised $760 million in February 2023, a seven-fold increase in total amount raised and a two-fold increase in the number of deals sealed over the prior month.
Upcoming Events
Blockchain Events Across The UAE 🔵
AIBC will be hosted between March 13th and 16th in Dubai, 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.