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Erebor Bank of Lonely Mountain: The stablecoin version of Silicon Valley Bank 2.0?
Whenever you see a hot topic flywheel start spinning wildly, and your GPU is burning out, just search through the articles you’ve written, the questions you’ve considered, and the podcasts you’ve done—I bet a Labubu that there's a 90% chance you’ll find relevant content—there's nothing new under the sun, you've actually thought about these things a long time ago and have already developed some ideas and connections (of course, the premise is that you’ve consistently played around for at least 5-8 complete cycles).
For example, the recent surge of stablecoins. As an old player, I can definitely say that I've seen this game before. But it keeps coming up with new terms and new looks. To be honest, it is indeed different from before; I can't say it hasn't made any progress at all. However, as long as a new term is used, all concepts along the value chain will be dressed in new clothes, and the cost of re-understanding it will inevitably increase. You will have to spend some tokens to discover that 80%-90% of the content is actually something you have already thought about.
Today I want to talk about the Lonely Mountain Bank (Erebor Bank).
Yesterday, Teacher Will threw an article at us, excitedly wanting to record a follow-up on stablecoins - the reason being "Peter Thiel is getting into banking again - stablecoin banks."
Indeed, it’s the familiar feeling of 'I think I've seen this plot somewhere before'—this time with Peter Thiel, widely regarded as an influencer of the current U.S. government, the 'new deep state', and the godfather of Silicon Valley, who previously advised everyone to withdraw their investments from Silicon Valley Bank (SVB), which directly led to its bank run and collapse, is back at it with banks?
This time he is collaborating with Palmer Luckey, co-founder of Anduril (a defense technology company), to build a brand new crypto bank named "Erebor."
First, shake off the possessed old Deng, as you can't speak without investigation; find information and make up for it first.
1. The Fable of Gushan
To be honest, this name is quite interesting. As a fan of The Lord of the Rings, I have to give it some extra points.
Erebor, the "Lonely Mountain" in "The Lord of the Rings", is the place where Smaug sleeps. Smaug is an evil dragon that survives by stealing gold and jewels from dwarves, elves, and humans, then burning them all. He resides in a huge cave filled with gold and treasures, covered while he sleeps.
Hmm, this IP image seems a bit off, giving a sense of "the dragon-slaying youth ultimately becoming the evil dragon"; but let's not worry about that for now, maybe this brand image really caters to the tastes of the core customers of crypto banks. Anyway, the naming conventions in Silicon Valley either draw from Greek mythology, Middle-earth, or are Latin words read backward. Erebor at least has some literary taste.
Putting names aside, what is truly worth considering is: why is Silicon Valley opening new banks just when stablecoins are (once again) gaining popularity?
2. The Collapse of SVB: 48 Hours
Almost all media reports mention: "To fill the huge gap left by the collapse of SVB" + "To support the wave of stablecoins."
Since SVB has been mentioned, let me help everyone review:
In March 2023, Silicon Valley Bank (SVB) set a record in financial history: it went from "Forbes' Best Bank of the Year" to a case of "regulatory takeover" in just 48 hours. At that time, I recorded two podcast episodes to join the conversation (one from the perspective of Old Deng and the other from Old Pao), characterizing it as a "storm in a teacup" — SVB, as the 16th largest bank in the U.S. at that time, was far smaller than Lehman Brothers during the subprime mortgage crisis and did not shake the global financial markets, but it was indeed a profound experience for the tech circle.
The trigger of the incident was not particularly explosive: On March 9, SVB announced the sale of $21 billion in securities, incurring a loss of $1.8 billion, while needing to raise $2.25 billion to avoid a liquidity crisis. As soon as the news broke, a bank run occurred the next day, with depositors attempting to withdraw $42 billion, leading to a more than 60% drop in stock price. SVB's held-to-maturity securities suffered a loss of $15.9 billion at market value, while its tangible common equity was only $11.5 billion. The result was that the government stepped in to guarantee all depositors, but shareholders and bondholders lost everything, and the management was all fired, with the stock price plummeting from over $200 to zero. This bank, which had been established for 40 years and had just given out year-end bonuses two days ago, suddenly collapsed.
The collapse of SVB exposed the fundamental mismatch between the "traditional banking industry" and the "innovative economy." SVB served over half of the startups in Silicon Valley, but its business model is essentially from the 19th century—taking deposits with one hand, issuing loans with the other, and earning interest spreads.
The problem is that tech companies have just received a truckload of cash from VCs and have no demand for loans at all. SVB could only invest these funds into long-term bonds, ultimately dying from duration mismatch and interest rate risk.
Of course, as long as it is a bank, there is this possibility. Mismatched terms are the core business model of commercial banks— the possibility of a run always exists. The collapse of SVB was an event that required the right timing, location, and people to mess it up: (1) the customer structure was extremely special and singular; (2) asset-liability management was extremely failed; (3) it also had to precisely hit the point of cyclical reversal at a 40-year low interest rate era.
Let's start with (1):
SVB's customer base is incredibly unique. If you attended any VC meetings or startup events in the U.S. in recent years, you would have definitely seen SVB setting up shop at the entrance — the customer base is solely made up of startups that have just secured funding, without any segmentation.
Look again (2):
During the period of quantitative easing by the Federal Reserve from 2020 to 2021, financing for innovative companies reached a peak, with SVB deposits skyrocketing from $61 billion in 2019 to $189 billion in 2021, a threefold increase in three years. When interest rates are extremely low, these deposits are almost free capital.
The problem lies in the deposit structure: demand deposits and trading accounts account for 132.8 billion USD, while savings and time deposits only account for 6.7 billion USD, with demand deposits making up as much as 76.72%. This is an extremely poor liability structure—corporate demand deposits are the least stable, and SVB's corporate clients are all technology innovation companies, with no diversification and highly homogeneous.
The liability side is already dangerous, and the asset side is even more distorted: don't forget that these clients only deposit money and do not take out loans. Startups do not have fixed assets or stable cash flows, and banks cannot lend to them. As a result, they buy a large amount of debt, initially short-term government bonds, and later, in order to increase returns, they shift to long-term government bonds and (that's right) agency mortgage-backed securities (various ABS).
In this way, the main risk of a bank has shifted from credit risk to interest rate risk.
Later on (3): Interest rates increased.
Under normal circumstances, interest rate hikes are beneficial for banks – as deposit rates rise, loan rates also increase, and the interest margin remains basically unchanged or even increases. However, SVB's asset side is heavily invested in long-term bonds (accounting for 56% of assets, while the average level in the U.S. banking industry is only 28%). With rising interest rates, the market value of bonds declines.
So it’s a double kill: the asset side sees bond devaluation, the liability side faces high interest rates, and the supply of cheap deposits decreases (does this plot sound familiar? There’s a similar version domestically called small and medium-sized banks).
Finally, drizzle a spoonful of hot oil: all the tech companies in Silicon Valley are in the same WhatsApp group, and when Peter Thiel's Founders Fund led the withdrawal of investment, the stampede happened in the blink of an eye—there's no creature on Earth more conformist than a VC, after all, FOMO and FUD are the cultural genes of this circle.
3. Fall where you may, rise where you must
It's okay to fall. The wind will rise again, this time landing on the stablecoin peak. The original team has decided to solve the problem themselves.
I searched for a long time and found the national bank charter application submitted by Erebor Bank to the Office of the Comptroller of the Currency (OCC) ("Erebor Bank, NA, Columbus, OH (2025)").
This application reads like an emotionally charged declaration—clearly positioning itself as "the most regulated stablecoin trading service provider" and vowing to "fully integrate stablecoins into the regulatory framework."
Perhaps due to the lessons learned from SVB, the information available suggests that Erebor's risk control strategy is extremely conservative: keeping more cash on hand, lending less, and only lending up to half of deposits (1:1 reserve requirement, loan-to-deposit ratio controlled at 50%); capital exceeds regulatory levels within three years; all initial funding comes from shareholders' actual cash, no borrowing, and no dividends for three years.
The target customers are very clear: technology companies focused on virtual currencies, artificial intelligence, national defense, and high-end manufacturing, as well as high-net-worth individuals (aka those considered by traditional banks as having "either unstable cash flow or risks too high to understand") who work for or invest in these companies; and "international clients" (aka overseas companies wanting to enter the U.S. financial system but struggling to find a way in; particularly those relying on the U.S. dollar or wanting to use stablecoins to reduce cross-border transaction risks and costs, aka clients partially using U and underground money houses). Erebor plans to establish "agency relationships" to become their "super interface" for accessing the U.S. dollar system.
The business is also clear and straightforward: it offers deposits and loans, but the collateral is not houses or cars, but Bitcoin and Ethereum.
Stablecoin business is a priority: helping enterprises to "legally conduct the issuance, redemption, and trading settlement of stablecoins"; and planning to hold a small amount of virtual currency on its own balance sheet—purely for operational needs (to pay gas fees), not for speculation.
At the same time, a red line has been drawn: **No provision of statutory custodial activities requiring a trust license (aka only **transfer settlement, no asset custody).
It seems to be an upgraded version of Silicon Valley Bank 2.0. The logic of SVB is: attract deposits → issue loans → earn interest spread. The logic of Erebor is: build a bridge between the fiat world and the stablecoin ecosystem, and then attract deposits → issue loans → earn interest spread on it.
Four, is this time different?
That's all the information. No conclusions can be drawn, only deductions.
First, let's look at the stablecoin business section.
Did not find a file explaining whether the absorbed currency is a stablecoin or fiat currency, but since it "helps enterprises comply with the issuance, redemption, and trading settlement of stablecoins", then assuming it absorbs fiat currency, part of it issues stablecoins, and part is directly loaned out. This is equivalent to overlaying other commercial banking functions on top of Circle. In other words, it begins to create credit.
If Erebor Bank can really maintain such a conservative loan-to-deposit ratio and capital adequacy ratio, and completely isolate the stablecoin part of its business—only doing payment settlement, not lending or custodial services; and only servicing USD stablecoins, specifically regulated USDC, it seems somewhat reliable. The remaining fiat currency part of the business can learn from the lessons of SVB.
I know you want to ask: Why can't stablecoin deposits be used for loans?
Because 'one dollar of stablecoin' and 'one dollar in bank deposits' are two different things. The role that 'one dollar in a bank' and 'one dollar in a stablecoin' can play is completely different. Let's understand the deposit multiplier:
If a company deposits 10 million dollars in a bank, the bank only needs to keep 20% as reserves, and the remaining 8 million can be lent out. When a second company borrows 8 million and deposits 6 million of it in the same bank, the bank now has 16 million in deposits. This process can be repeated continuously.
This is the "alchemy" of the banking system—through the deposit multiplier effect, a deposit of 10 million could ultimately create more liquidity.
But stablecoins do not have this kind of "alchemy". In the world of stablecoins, one dollar is one dollar, and there must be an equivalent dollar backing it, which cannot be inflated out of thin air; this is precisely the definition of a stablecoin. There's no way to argue against it, as the GENIUS Act has made it definitive.
This is the cost of being a stablecoin bank: as a bank, you can't engage in the most profitable activity (lending), and by embracing "stability", you have to sacrifice the lending capacity of the banking system.
Speaking of this, it reminds me of Professor Bessent's statement on X: it is estimated that stablecoins could absorb $3.7 trillion in government bonds.
If half of it comes from checking or savings accounts, it amounts to about 10% of the total deposits in American banks. According to the logic above, this presents a huge trade-off:
Created a new huge source of demand for U.S. Treasury bonds (increased public credit).
At the cost of sacrificing the lending capacity of the banking system (weakened private credit).
When everyone withdraws money from the bank to buy stablecoins, the bank's ability to create credit through the "deposit multiplier" is weakened. This is essentially an inevitable result of the government's long-term fiscal deficit (there's no shortage of historical examples: one can review the impact of money market funds on the banking industry in the 1970s).
5. Liquidity: A Place Where Ghost Stories Easily Happen
This has only deduced to basic deposits, and hasn't even reached the liquidity ghost story yet.
If stablecoins become the main characters on the Erebor balance sheet, even though they are pegged to assets like the US dollar, currently there is no federal deposit insurance backing stablecoins, nor is there off-chain liquidity support from the Federal Reserve's discount window.
If the stablecoin suddenly decouples and drops, and a significant proportion of Erebor's assets happen to be its reserves or related equities, it would still face an "on-chain run"; moreover, depositors don't need to queue, they just have to click the mouse to withdraw. In such times, there is no FDIC takeover, no central bank bailouts, can Erebor withstand it?
Looking at the loan part again, this time I did not buy government bonds, but I want to take out a loan secured by cryptocurrency. However, this problem is not difficult to calculate:
Known:
Question: How to avoid the death spiral?
Alright, now let's combine these two things and continue to deduce: if the right side of the balance sheet is stablecoins, and the left side is cryptocurrency collateral loans (liability side (stablecoins) + asset side (crypto loans)), wow, this combination sounds really exciting.
Let's do another stress test:
Summary in one sentence: Basically, it is based on the duration mismatch of SVB, with an added layer of leverage and an on-chain liquidity crisis accelerator.
Once the above scenario is activated, those buffering mechanisms of traditional banking do not exist here:
This does indeed resemble the "regulated version of Terra".
Six, Be More Optimistic
I couldn't help but mention old Deng again. However, to be fair, cryptocurrencies and digital assets have become an objective reality. Only three countries in the world completely ban cryptocurrencies. Whether I like it or not, (USD) stablecoins will develop explosively in the foreseeable future.
Erebor aims to create a "hybrid banking model" that aligns with web3 logic and meets regulatory requirements—enjoying the robust reserves of traditional banks while leveraging all the conveniences and efficiencies of the on-chain world.
From this perspective, Erebor represents an inevitable trend: regardless of who actively embraces whom, traditional finance and the digital asset ecosystem will attempt to merge.
The question is: who should lead this integration?
Returning to the name Erebor. In Tolkien's story, Smaug was ultimately killed, and the treasure of the Lonely Mountain was returned to the dwarves, elves, and humans.