Darren Kleine

Operation Chokepoint 2.0 is indeed underway, according to Rob Leshner, founder of Compound Labs.



The <a href="https://www.youtube.com/watch?v=RNkyE2HgBi4">Empire podcast</a> guest spoke to Blockworks about the de-banking phenomenon after recently tweeting: “Make no mistake. The government wants to kill one of the most innovative segments of the US economy, which is crypto.”



Leshner said it’s not really a controversial statement any more: “There is a coordinated effort to de-bank the crypto industry through not entirely normal policy.” Much of this effort is happening behind the scenes, Leshner explained. It’s a similar method to how, a decade ago, <a href="https://blockworks.co/news/operation-choke-point-2-0">Chokepoint 1.0</a> tried to de-bank a legal industry by piling on the red tape in an effort to make it economically unsustainable, he said.



<a href="https://blockworks.co/tag/silvergate" target="_blank" rel="noreferrer noopener">Silvergate</a> and <a href="https://blockworks.co/tag/signature" target="_blank" rel="noreferrer noopener">Signature Bank</a> were the primary US on and off ramps between the banking system and crypto, Leshner explained. “Both of these went from functional to non-existent in an incredibly short amount of time following statements by banking industry regulators.” A number of legislators and actors in the ecosystem, he said, were excited for these banks and their crypto activities to no longer be functional.



<h2 class="wp-block-heading">Banks functioning normally, sans crypto</h2>



Even post-failure, the entire banking apparatuses of Signature – outside of crypto – continue to function normally. “Signature was sold to another bank and all of their customers, with the exception of crypto customers, are up and running” Leshner says. Crypto companies – and only crypto companies – were de-banked in this process.&nbsp;



Following the bank’s sale, both the Signet payment system and crypto balances were not restored. The bank effectively transitioned overnight from being one of the primary institutions serving crypto businesses to one that does not at all. “Silvergate, likewise, is 100% offline for crypto companies” Leshner noted.



Leshner observed, “At this point, there’s no mainstream supported infrastructure for legal institutions that interact with crypto to interact with the banking system.” A single bank – Cross River Bank – has essentially become the lone bridge between banking and crypto organizations, Leshner said.



This leaves Cross River as the most visible remaining explicitly pro-crypto bank, said Nic Carter, general partner at Castle Island Ventures and board chair at Coin Metrics. Banks, Carter explained, are facing “increasing demand for higher compliance overhead, endless paperwork requests from regulators, and demands that they reduce exposure to crypto.”



In addition to that, Carter said Cross River Bank is now facing criticism for their role in the <a href="https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-protection-program">PPP</a> program, which “helped businesses keep their workforce employed during the Covid-19 crisis.”&nbsp;



“Even though PPP was explicitly disseminated with the understanding that there would be fraud,” Carter explained, “the government deliberately overlooked that with the intent of getting funds out the door quickly.”



Now, it seems the government has changed its tune, at least when it comes to oversight of Cross River Bank. “It’s a bit of a pretext that now Cross River Bank is being looked into for being too loose with their PPP disbursements,” Carter said, “because that was precisely the objective of the government program.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG6720676907" width="100%"></iframe>







Reflecting on the events, Leshner concluded, “The map was wiped clean in an incredibly short amount of time due to government action in an unanticipated way…There’s an effort to de-bank crypto and it’s been – unfortunately – incredibly effective.”



“The message remains clear,” Carter said, “bank crypto firms, and risk losing everything.”



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Chokepoint 2.0: Efforts To De-bank Crypto Highly Effective

Michael Bodley

Wyre is reaffirming commitment to its interim chief executive, a compliance and risk specialist with a law degree who steered the crypto payments processor out of dire financial straits mere months ago. 



Stephen Cheng, tapped as Wyre’s interim CEO in January, was named by the private company’s board as permanent chief executive on Monday, he told Blockworks in an exclusive interview. Cheng said Wyre is “returning to its core competencies” under his leadership. 



His permanent appointment appears telling of how the house views Cheng’s internal turnaround set in motion around the start of 2023. The company, according to a statement, now has customers in more than 100 countries and has facilitated more than $12 billion in transactions since it commenced operations in 2013.&nbsp;



“I’m happy to say that now we’re in a position to really cement our foundation so that we could grow not just top line, but also bottom line,” Cheng said.&nbsp;



Wyre’s back-to-basics shift has been <a href="https://blockworks.co/news/in-about-turn-crypto-payments-platform-wyre-secures-funding" target="_blank" rel="noreferrer noopener">fueled by a capital influx</a> that suddenly shored up the ailing state of its own finances in January. 



Cheng declined to comment on the identity of Wyre’s eleventh-hour backer, who came in seven days after he was elevated to interim CEO. The Wyre chief executive also declined to specify the amount in question, which he called “strategic financing of a potential transaction.”&nbsp;&nbsp;



Cheng is a lawyer with a number of high-profile compliance and risk-oriented positions on his resume. He’s worked in senior roles for companies including American Express and Green Dot Corporation, and he served as Prime Trust’s chief compliance officer before joining Wyre in August 2021.&nbsp;



Wyre’s latest funding hit as the capital-starved company was forced to implement restrictions on customer withdrawals to protect its balance sheet. Those restrictions, which blocked withdrawals of excess of 90% of account value, turned out to be short-lived.&nbsp;



<h2 class="wp-block-heading">Crypto boom to bust to…</h2>



Founded in 2013, Wyre grew to prominence as a player in the crypto infrastructure sector — mainly via heavy trader adoption and usage of its on- and off-ramps that bridge digital assets and fiat currencies. The San Francisco-based startup ballooned to a purported $1.5 billion valuation last year in a planned acquisition by Bolt Financial that never happened.



Bolt called off the deal in September 2022 as financial markets fell. A flurry of subsequent funding attempts — save contributions here and there from exiting Wyre backers — didn’t pan out, Cheng said.&nbsp;



The company is tapping funds from a “strategic partner,” in part, to create a “robust risk management” system that puts compliance measures at the internal forefront, he said.&nbsp;


<div class="wp-block-image">
<figure class="alignright size-large is-resized"><img loading="lazy" decoding="async" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/04/stephencheng-scaled.jpg?w=1024&amp;h=1024" alt="" class="wp-image-51705" width="197" height="197" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/04/stephencheng-scaled.jpg?w=2560 2560w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/stephencheng-scaled.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/stephencheng-scaled.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/stephencheng-scaled.jpg?w=150 150w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/stephencheng-scaled.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/stephencheng-scaled.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/stephencheng-scaled.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/stephencheng-scaled.jpg?w=257 257w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/stephencheng-scaled.jpg?w=261 261w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/stephencheng-scaled.jpg?w=219 219w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/stephencheng-scaled.jpg?w=80 80w" sizes="auto, (max-width: 197px) 100vw, 197px" /><figcaption class="wp-element-caption">Wyre CEO Stephen Cheng | Photo source: Wyre</figcaption></figure></div>


“A lot of times what I do is I go into a business where the growth has gone so fast, and the technology has exceeded the pace of the risk management system,” Cheng said. “So, I go in, and I help renovate or modernize that risk management program so that it not only catches up to the growth, but now it would be in a position to scale, as well.” 



The hope is that the approach begins to start “engendering or regaining” trust when it comes to both customers and counterparties, he said, adding that he was speaking in general terms.&nbsp;



On the counterparty front, crypto wallet solution MetaMask revoked its Wyre integration in early January as news of the company’s troubles started to bubble — including <a href="https://blockworks.co/news/from-1-5-billion-to-0-crypto-payments-platform-wyre-shuts-down" target="_blank" rel="noreferrer noopener">word reportedly spread by a couple of ex-employees</a> that the company’s <a href="https://www.axios.com/2023/01/03/wyre-shutdown-crypto-winter" target="_blank" rel="noreferrer noopener">closure</a> was likely imminent. Ioannis Giannaros was Wyre’s CEO at the time. 



Wyre’s support of debit and credit cards to buy cryptocurrencies had positioned the company to capitalize on a boom of bull market digital asset interest. But the company’s lack of funding, according to industry participants and previous reporting, left it exposed to bearish conditions.&nbsp;



<h2 class="wp-block-heading">&#8216;More with less’</h2>



Public pressure neared a boiling pot when the company restricted withdrawals. 



Wyre laid off employees to right the ship. The company had somewhere between 150 to 200 employees at its peak, Cheng said — and it now has about 50. 



The slimming down has come with Cheng and his team putting in place a series of internal and external safeguards designed to ensure what happened in January doesn’t happen again.&nbsp;



“In line with just global macroeconomics, everyone’s learning how to do more with less,” he said. 



“And our approach to it is to really be data-driven and technology-oriented, because we’re ultimately also a technology company, so that we [can] scale and be optimal with our resources.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



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Ramps