Stablecoins are becoming a key link between DeFi and banking. However, this integration introduces risk.Stablecoins are becoming a key link between DeFi and banking. However, this integration introduces risk.

Stablecoin banks like Erebor could inherit DeFi’s weakest links, says Web3 security firm

1 min read

As Erebor fills the void left by the collapsed SVB, experts are warning about the potential risks of stablecoin integration with banking.

Stablecoins are increasingly integrating with traditional finance, which presents both risks and opportunities. Amid the launch of a stablecoin-powered bank, Erbor, backed by Palmer Luckey and Palantir’s Joe Lonsdale, crypto is becoming increasingly exposed to DeFi.

Mitchell Amador, CEO of the blockchain security firm Immunefi, shared his insights with crypto.news on this topic. According to Amador, the integration between banks and DeFi protocols carries several structural trade-offs. Notably, banks will gain access to more functionality but also become more exposed to risk.

Banks will have to learn DeFi security

Most banks rely on regulated and closed systems, including SWIFT and Fedwire, for transfers. On the other hand, DeFi protocols are controlled by third parties, relying on smart contracts that could have vulnerabilities.

In recent years, crypto firms have had issues getting access to banking services, which saw the business as too risky. One bank, SVB, which regularly served crypto clients, collapsed in 2023, due to its reliance on U.S. Treasury yields.

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