$1.8B SVB collapse 🚨 £1 bank sale!
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Here’s what we have for you and Posty this week👇
Weekly Web3 Updates
The Collapse of SVB
Who’s making web3 fun?
Web3 Jobs & Reads
Estimated Reading Time: 3:45 minutes
Weekly Weather Report 🌤
Quick Web3 updates curated for you:
Crypto, virtual assets to come under money laundering provisions
Introducing BharatGPT, an Indic ChatGPT capable of running rich data besides text
Near Protocol launches Web3-focused blockchain operating system
Euler Finance hacked for over $195M in a flash loan attack
Solo miner mines a valid BTC block for $150K reward; it’s happened only 270 out of 700K blocks produced!
The Collapse of SVB: Impact on Tech, Crypto, and Startups
Last week we witnessed the second-biggest bank failure in U.S. history and the largest since the 2008 financial crisis. 📉
💡 Silicon Valley Bank is a commercial bank that largely serves the tech industry. Tech companies and venture capital both banked with the company, which was more willing than other traditional banks to lend money to VC-backed startups that may have been lacking in cash flow. 💡
On Tuesday, SVB CEO Greg Becker was at an investor conference answering questions about what he does to relax. A few days later, the bank he led collapsed. 🙃
What happened? 🤔
In 2020, amidst the pandemic, the tech industry boomed. People worked remotely, tech companies went on hiring sprees, and Numerous startups received funding.
VCs raised HUGE funds → Invested it into startups that bank with SVB → SVB’s deposit balances tripled to $198 billion → SVB invested the bulk of these in securities.
Then, to tackle rising inflation in the U.S., which was supposed to be “transitory”, the Federal Reserve raised interest rates. 👇
The cost of borrowing money went up, causing the tech industry to recalibrate.
VCs started pulling back from tech investments.
Depositors started asking for their money back.
To minimize losses and pay back customers, SVB sold off some of its assets at a loss of $1.8 billion and attempted to raise money from investors to offset the loss. The raise failed, leaving a hole in the bank's balance sheet and resulting in its collapse. 📉
This South Park video is making rounds on Twitter, and there’s no better way to simplify the situation. 👀
How does this all impact the crypto industry? 👀
SVB and Silvergate Capital, two banks that were friendly to the crypto sector, have failed in less than a week.
Both banks were instrumental in providing liquidity and financing for crypto companies and start-ups, including crypto-friendly venture capital funds and some digital asset firms.
This could present problems for bitcoin and the overall liquidity of the crypto market.
The failure of these banks has had a destabilizing effect on the stablecoin market, which is supposed to maintain a set price. 👇
USDC, the second-most liquid U.S. dollar-pegged stablecoin, lost its peg after its issuer, Circle, admitted to having $3.3 billion banked with Silvergate Capital.
Both USDC and DAI traded below their dollar peg on Saturday, and some traders began swapping them for USDT.
The only relief here is that this morning it was announced that Circle’s $3.3 billion in USD funds held in SVB were transferred out and USDC is nearly regaining $1 peg.
The Federal Reserve's intervention in guaranteeing depositors of SVB has prevented a larger bank run, but the failure of the three largest crypto-friendly banks in a matter of days is still dispiriting. 👎
Many in the industry are pivoting to Mercury and Axos, two other banks that cater to startups, but there is a long tail of challenger banks that may take up the slack.
Setting tech back by 10 years ⏪
More than 85% of Silicon Valley Bank's deposits were not insured, and the FDIC insurance only covers up to $250,000 per account. How does this affect startups? 👇
Over 10,000 small businesses with accounts in SVB may be unable to pay their employees in the next 30 days.
Approximately 1 lakh jobs are anticipated to be affected.
Y Combinator CEO Garry Tan calls it an extinction-level event. 🤯This is an *extinction level event* for startups and will set startups and innovation back by 10 years or more. BIG TECH will not care about this. They have cash elsewhere. All little startups, tomorrow's Google's and Facebooks, will be extinguished if we don't find a fix.
HSBC to the rescue with £1 💸
£1 or Rs.99 is what HCBC paid to buy SVB’s UK arm, making it one heck of a rescue deal. 👀
UK Finance minister Jeremy Hunt warned Sunday that there was a "serious" risk to Britain's tech and life sciences firms that banked with SVB. This deal is aimed at ensuring customer deposits are protected and can bank as normal, with no taxpayer support.
Although there’s hope, we feel for those who are going through a tough time because of this. Here's hoping that the industry bounces back soon and that other challenger banks step up to fill the gap. 💪
We need to learn from this and work to make the banking and financial sectors more stable going forward.
Web3 is revolutionary, web3 is decentralized, but are you havin’ fun yet? 👀
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That’s it for today, folks! 👋 We’ll see you with Posty next Monday! 🗞
Imo the “10 year industry drawback” is an overstatement. Many of the SV startups are creating products catered to the 0.001% (who tf needs a $2500 juice squeezer?!)
Good startup ideas will still receive backing. It’s just a short-term shock. Let’s see the outlook 2 years from now
STOP - DO NOT INVEST IN SUBSTACK'S BROKEN MODEL!!!
Seriously if they are begging for money and VC bailed it means its a broken model. Think about it, how many regular people are paying per writer $5 to $10 per month? Not enough apparently and the next thing they will introduce is advertising which is 1million times worse. This monetization model is for elites, elite writers and elite readers who can afford to pay to "benefit" from their writing. Its not Twitter but its just as elitist as Twitter and will devolve into the same mess and control mechanism.
Go check out web3. Go check out crypto. Go check out the MVP of my solo hobbiest project "dplatform.me" The next platforms will be web3, crypto, micro-transactions, and governed by decentralized autonomous organizations (DAOs) or no one
The future is decentralized!