The Federal Deposit Insurance Corporation headquarters in Washington, D.C.
Photo: Karen Bleier/AFP via Getty Images

The FDIC crackdown isn’t just about crypto

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Tuesday: the FDIC’s crackdown, Solana Spaces and LendUp’s failure.

Off the chain

The team behind b8ta has gone Web3. Its new venture, Solana Spaces, markets Web3 merch from outlets similar to the glossy new-hardware showcases b8ta ran. In fact, its New York outpost is in the same Hudson Yards location as a former b8ta store. The real test may be if Solana Spaces opens up a store in its hometown of San Francisco, where b8ta faced a harrowing series of robberies. The blockchain can only offer so much security IRL.

— Owen Thomas (email | twitter)

A run on reputation

Regulators have a message for banks amid the crypto crash: Be careful of the company you keep. Especially if they’re prone to running their mouths about deposit insurance.

The Federal Deposit Insurance Corp. warned banks last week that they need to monitor how their crypto customers advertise the availability of insurance, after at least one case in which it said customers were misled. The notice could create headaches for banks that partner with crypto companies and other fintech firms — once a growth market, now a growing disaster field.

The notice is the latest fallout from the Voyager Digital bankruptcy. The FDIC and Federal Reserve sent a cease-and-desist order to the crypto lender on Thursday, saying it made misleading statements about insurance coverage.

  • Since then, blog posts and tweets from Voyager referencing FDIC coverage have been deleted. The company declined to comment to Protocol on Monday about its actions since receiving the letter.
  • The FDIC-insured Metropolitan Commercial Bank stored some Voyager customers' U.S. dollar deposits. But the federal insurance only kicks in if Metropolitan fails, as the bank explained, not in the case of Voyager's bankruptcy.
  • A 2019 blog post from Voyager told customers that "in the rare event your USD funds are compromised due to the company or our banking partner's failure, you are guaranteed a full reimbursement (up to $250,000)." The bank is holding about $350 million in customer funds, which Voyager has told customers will be released after the bank undergoes a fraud-prevention process.

The FDIC was already tightening things up before the crypto crash. In April 2021, the FDIC’s board of directors began setting rules for how the agency can investigate and punish misuse of its name and logo.

  • Along with scammers misusing the FDIC logo, "we have also seen circumstances where certain nonbanks were making unsubstantiated claims about deposit insurance," Martin Gruenberg, acting chair of the FDIC board of directors, said before the board voted on the rule in May.
  • The FDIC board approved the new rule on May 17 and it took effect on July 5 — the day before Voyager filed for bankruptcy. Shortly after, The Wall Street Journal reported that the FDIC was investigating how Voyager advertised itself to customers.
  • Voyager had until Monday to confirm to regulators that it had complied with the cease-and-desist order or provide evidence its public statements were accurate. A spokesperson for the FDIC said Monday that the matter is ongoing and declined to comment further.

Banks would rather not be the enforcers. The industry generally supports efforts to crack down on false advertising about deposit insurance, but keeping tabs on customers’ marketing is a step too far.

  • Misleading statements about deposit insurance from nonbanks brings the "potential for significant consumer confusion" and reputational risk for banks, noted the American Bankers Association in a letter to the FDIC in July 2021.
  • But banks could struggle to monitor all statements from their partners. "We understand the need for banks to have strong third-party standards and practices, but do not believe it is appropriate to impose this expectation on banks in an unlimited fashion," the letter said.
  • In the FDIC's view, however, banks must "assess, manage, and control risks arising from all third-party relationships," as stated in Friday’s advisory.
  • Most banks were already monitoring their partners, crypto or otherwise, for risks. But the advisory Friday will lead many to double-check their policies, noted Daniel Meade, a partner in the banking regulatory practice for Cadwalader, Wickersham & Taft.

The biggest challenge, Meade said, is the lack of a stick for banks to wield. They could try to cancel the business, but that could be difficult depending on the bank’s contract or deposit agreement, he added. This will be an issue for companies beyond crypto to watch closely. Fintech companies that market themselves as banks but are not actually chartered institutions have been a point of constant tension. And the FDIC is not the only regulator watching this space: The Consumer Financial Protection Bureau has similarly promised to take action against firms that are not clear about what deposit insurance covers.

— Ryan Deffenbaugh (email | twitter)


They created Digital People. Now they've made celebrities available as Digital Twins: Soul Machines co-founder and CEO Greg Cross and his co-founder Mark Sagar, Ph.D., FRSNZ are leading their Auckland and San Francisco-based teams to create AI-enabled Digital People™️ to populate the internet, at first, and soon the metaverse.

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On the money

Visa must face claims that it profited from videos of child sexual abuse. A federal judge in California rejected Visa’s motion to dismiss claims related to processing payments for the parent company of Pornhub, a decision Visa says raises questions about the liability payments firms face while processing billions of transactions.

On Protocol: The crypto crash has deterred ransomware criminals. Tighter security and a government crackdown has also held down their take.

The SEC filed charges against 11 people involved in an international "crypto pyramid and Ponzi scheme" that raised more than $300 million.

Wanted: crypto whistleblowers. New York State Attorney General Letitia James published a notice Monday urging workers to contact her office if they witnessed improper behavior inside a crypto company. She also asked investors who believed they’d been deceived to get in touch.

LendUp Global has begun liquidating its assets. That includes its neobank subsidiary, which the company had said would continue operating after regulators forced another unit to stop lending. The windup is happening through an assignment for the benefit of creditors, a quieter alternative to a public bankruptcy.

Also on Protocol: New York fined Robinhood’s crypto unit $30 million over compliance failures.

Binance.US delisted a token identified by the SEC as a security. The exchange said it would delist the AMP token “out of an abundance of caution” after the SEC alleged it was a security last month in an insider trading case against a former Coinbase employee.

The cost of fast home sales

Real estate iBuyer Opendoor has settled charges with the FTC, agreeing to pay $62 million and cease practices the FTC called "deceptive."

Opendoor buys homes directly from consumers as an alternative to the traditional home-selling process, using algorithms to price the homes in what it says is a faster and more convenient process. Opendoor has grown quickly in recent years, managing to avoid the pitfalls that hit rival Zillow as home prices gyrated during the pandemic.

Opendoor had said it offered "market-value" offers and lower transaction costs, and its marketing materials claimed that net proceeds of a transaction were higher with Opendoor than a traditional sale, the FTC said.

Read the full story on

— Tomio Geron (email | twitter)

Deal flow

Former a16z partner Rex Salisbury launched a $20 million fintech fund. The fund is the first for his new VC firm, Cambrian Ventures, and is backed by the founders of NerdWallet, Plaid, Simple, Alloy, Modus, SoFi, and more.

Andreessen Horowitz invested in Gary Vee’s NFT project, VeeFriends, in a $50 million seed round. The firm called VeeFriends “a blueprint for effectively leveraging Web3” and was the sole investor in the round.

Pogo raised $14.8 million in seed funding. The firm’s product allows users to earn money for sharing data; it likens the service to the Honey browser extension, which helps users find coupons online. The round was led by Josh Buckley and also included Slow Ventures, Village Global and The Chainsmokers.

Parisian social investing app Shares raised $40 million in a Series B funding round led by Valar Ventures. The app helps investors build networks with family and friends.


They created Digital People. Now they've made celebrities available as Digital Twins: Soul Machines is at the cutting edge of AGI research with its unique Digital Brain, based on the latest neuroscience and developmental psychology research.

Read more from Soul Machines

Thanks for reading — see you tomorrow!

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