Over the last few years, the fintech space has exploded with the "banking as a service" model allowing consumer fintech companies to launch savings accounts and debit services quickly. Since fintech companies themselves often do not have access to FDIC-backed accounts due to the additional regulations and requirements from the US banking system fintechs use a so-called "middleman" to bridge the gap between the FDIC-insured banks. Numerous companies fill this space such as Razorpay and Oracle Financial Services one of them though, Synapse, filed for bankruptcy earlier this year and the information coming out about why is pretty wild.
Synapse had shown some signs of issues last year and a couple of the biggest fintech players like Mercury and Dave were able to change middlemen and avoid the whole situation. Others like the now infamous Yotta did not escape that fate and between Synapse and one of the banks that were supposedly holding Yotta funds, Evolve Bank & Trust, can't even agree on the amount of money that was supposedly sent to the bank.
How does this even happen you might wonder? The Ledgers at Synapse do not line up with what was sent to them and where the money went. Essentially the money has disappeared and customers who used Yotta for their savings account, which they advertised as having, are not eligible for FDIC insurance coverage because well there were no rules set into motion about what to do in this situation. Over $109 million is missing from thousands of customers and the person put in charge of Synapse's bankruptcy is former FDIC Chair Jelena McWilliams, who was named trustee and has appealed to the FDIC and other regulators for help for these people whose funds are locked.
It is not only traditional customers that are affected though as crypto firms Juno and Copper are also locked as well. Yotta's cofounder has worked with other companies impacted by this and it is estimated that 200,000 total customer accounts are locked. Evolve Bank has stated the following:
“These irregularities in Synapse’s ledgering of Yotta end user funds are just one example of the many discrepancies that Evolve has observed,” the bank said. “A detailed investigation of what happened to these funds, or alternatively, why the Synapse-provided ledger reflected money movement that did not actually occur, must be undertaken.”
How this happens and what is next is still up in the air and confusing to follow. Since these are private ledgers not only is it going to take time to figure out who lied where and thus where the money went but it is also going to be stupid expensive. This immense and honestly mindboggling failure is just another check mark next to why public blockchains like Bitcoin and DeFi are more important than ever to bypass these middlemen and be able to keep track of your own money!
Please know I am not a financial advisor and make sure you do your own research! If you enjoyed this article and would like to support me further below are a few referral links that if you used when signing up I would appreciate it! Also, follow me on Twitter @Cje95_
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