“What I imagine is going on here is that should this become a new chartered bank… the bank would be providing this ‘cash in, obfuscated crypto out’ type of a product that would allow these agencies to be able to make payments,” he says.
Anduril also knows how to sell to the US government, and Erebor can use some parts of Anduril’s growth strategy, says Rory McDonald, a business school professor at the University of Virginia who has studied Anduril. In Anduril’s case, Palmer Luckey and his cofounders started by targeting the US government’s border-security technologies, identifying them as a “fringe” part of the defense market. They offered an “imperfect but good enough technological solution and then [rode] the wave of improvement in that technology,” McDonald tells WIRED.
High-risk startups in crypto, AI, and defense may be that fringe market for Erebor—especially crypto companies. Signature Bank and Silvergate Bank—both of which failed around the same time as SVB—had also aimed to corner the crypto business-banking market by offering crypto-focused services.
Stephen Marcus, Co-Founder and General Partner of Riot Ventures, which invests in some of the industries Erebor intends to serve, says Erebor will soon have to speak publicly about its products and determine how it will “communicate the stability” to potential business clients. “At the end of the day, these companies need access to liquidity, and they can’t afford to have their cash not accessible,” he says, noting the “notoriety of the investors and those that are booting it up might be helpful,” though they’ll have to “earn” companies’ trust outside the portfolio companies whose banking decisions they can influence more easily.
Granted, that assumes Erebor gets that far; for all the deregulation making charter approvals speedier and more likely, regulators may see Erebor’s application as too unprecedented or systemically risky. According to Evey Guo, Principal at lobbying firm and consulting group FS Vector (founded by the former Chief Compliance Officer and General Counsel of Circle), Erebor’s “novel elements” may elicit “additional regulatory scrutiny and require particularly robust controls.” Another banking industry specialist said Erebor’s “monocrop” client profile could also cause concern, as a lack of client diversity partially contributed to the bank collapses of 2023. Additionally, Baker, the Senior Fellow at Columbia, contends Erebor’s conservative approach to lending relative to its balance sheet may impose hurdles, as regulators have rejected previous banking proposals that shied away from lending.
Michele Alt, the regulatory consultant, sees a potential clash between the crypto industry and incumbent banks, which are “two very powerful lobbies,” in the wake of these charter applications. Organizations like the American Bankers Association (ABA) and Independent Community Bankers of America (ICBA) may attempt to take legal action or otherwise object to some charter applications, as the ICBA has most recently in a letter to the OCC, “strongly” opposing the attempt by Protego’s subsidiary to enter the space. The outcome for Erebor, as well as the slew of stablecoin banking ventures popping up, depends on incumbents’ litigiousness, and on the ability for banking regulators to function as arbiters upholding some integrity within a multi-trillion-dollar banking system.
“We know that [regulators] have deprioritized certain areas consistent with the policies of the current administration, but I would say, if not the federal banking agencies—who will regulate these banks?” Alt says.