• Team Sygnum

How Sygnum's value proposition as a trusted, regulated digital asset bank works today




Crypto lending giants are on the brink of insolvency amid market uncertainty and a lack of regulatory oversight. As current macro conditions led to a sharp decline in crypto prices across the market, so too did the collateral value of these crypto assets, causing many firms to halt operations entirely and triggering significant uncertainty among their clients.


However, the macro environment may not have been the underlying issue here, as many crypto lenders, funds and other associated parties were simply over-leveraged and lacked the necessary capital reserves to mitigate the rising deficits from their bad loans. As prices continued to decline and these firms incurred successive losses, they continued to double down on trades, which proved detrimental to an already fragile and poorly capitalised lending infrastructure. As crypto prices declined further, these positions were forced into heavy liquidations leading to a ripple-effect across the decentralised finance (DeFi) and crypto lending markets.[1] Crypto lending firms and their exposed clients have had to block withdrawals, freeze their services and liquidate major positions costing hundreds of millions to billions of dollars.[2]


This period of market volatility illustrates clearly how crypto firms without the necessary “central elements” (e.g. strong governance, capital adequacy and risk control frameworks) are unsustainable and vulnerable to failure. These kind of market conditions only substantiate the need for trust, transparency and client protection – practices that are renowned in traditional finance but have not kept up speed with the intensity of crypto innovation and its abundance of unregulated crypto service providers.


As Sygnum is a regulated bank, the recent market correction has certainly demonstrated Sygnum’s value proposition. By respecting the heritage of traditional finance (e.g. strong governance, sound risk management, including adequate risk limits and controls) and by following an approach that prioritises our clients, Sygnum continued to provide an outstanding experience during these times of crisis:

  • No clients had withdrawals blocked: in connection with the most recent market action, no transactions have been blocked by Sygnum. All digital assets deposited with Sygnum belong to our clients only. Sygnum does not use such assets for any commercial purposes or as working capital.

  • All clients were served and had a direct point of contact: during market crises, we are available 24/7 with personal contacts, allowing clients to call us directly to discuss the market situation and execute their actions or orders (e.g. for sell positions or to transfer assets).

  • No clients faced a forced liquidation on their positions: some clients decided to liquidate their positions, but it was the clients’ decision. Sygnum did not force any client to do so or even liquidate a position automatically without proper notice.

  • Sygnum faced no financial losses from clients’ leveraged positions: all of our counterparties honoured their positions.

So, what is the relevance of these events? Blocked withdrawals, delayed (if not dormant) customer service response times, forced liquidations and companies incurring losses due to counterparty risk, are some of the most alarming and recurrent issues from unregulated crypto service providers today. At Sygnum, with our approach, not one of these issues occurred.


The above results were possible thanks to our focus on client service and strong risk management procedures, which also align with our regulatory obligations. Clients can benefit from the best combination of Sygnum’s unique personalised client service and regulated digital asset banking solutions:

  • Sygnum has a pro-active approach to inform clients about their position risks: we notify clients before an event (e.g. margin call), allowing clients sufficient time to act and even avoid margin calls.

  • Sygnum’s loans and leveraged trade positions are managed by humans: every client is treated as a trusted individual, and we can tailor margin call procedures according to each client’s situation. We have the authority to approve margin call procedures to fit a client’s situation.

  • Sygnum, as a regulated bank, has a strong risk management framework: this avoided building large exposures with players that operated with extremely high leverage (especially leveraging their clients’ assets), and it prevents a situation where clients have highly leveraged positions.

  • Sygnum follows strong capital adequacy and liquidity rules: our regulatory obligations ensure that we avoid counterparty concentration and that our funding source is stable. As a regulated bank, we can fund ourselves properly by issuing fixed deposits, rather than leveraging clients’ digital assets.

Sygnum is a regulated bank and is supervised by the Swiss Financial Market Supervisory Authority (FINMA). As such, we are subject to the highest banking standards (e.g. Basel III). This means that Sygnum must adhere to current risk diversification rules, applying credit risk and overall exposure mitigation techniques for our credit and lending capabilities (i.e. Lombard loans). Upholding these requirements allows Sygnum to continue its operations in a stable manner, whilst reassuring clients that they can endure market extremities with peace of mind and trust – phrases which are brittle amongst many digital asset holders today.


Our successful track-record and the growth of our digital asset banking ecosystem is a testament to the value of trusted regulated banking services during market turbulence. Our interdisciplinary team of financial and digital asset specialists warrants Sygnum’s confidence in our business model, and we are well suited to come out of this phase of uncertainty stronger than ever. As we continue to collaborate closely with our industry partners and clients, Sygnum will continue to position itself as a trusted anchor amongst institutions and professional investors – allowing our clients to invest in the digital asset economy with complete trust.


Find out more or contact us about lending for digital assets here.



[1] Oliver Joshua, Chipolina Scott, Kadim Shubber: Crypto feels shockwaves from its own “credit crisis”. Financial Times. 24 June, 2022. https://www.ft.com/content/032b95dc-7feb-4a2d-8eac-c71235643c07 [2] Matt Levine: Crypto Debt Can Be Trouble. Bloomberg. June 15, 2022. https://www.bloomberg.com/opinion/articles/2022-06-15/crypto-debt-can-be-trouble

Disclaimer

This document is purely for educational purposes and has been issued by Sygnum Group. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication. It does not constitute an offer or a recommendation to subscribe, purchase, sell or hold any security or financial instrument. It contains the opinions of Sygnum Group, as at the date of issue. These opinions and the information contained herein do not take into account an individual‘s specific circumstances, objectives, or needs. No representation is made that any investment or strategy is suitable or appropriate to individual circumstances or that any investment or strategy constitutes personalized investment advice to any investor. Therefore, you must verify the above and all other information provided in the document or otherwise review it with your external advisors. Some investment products and services, including custody, may be subject to legal restrictions or may not be available worldwide on an unrestricted basis. The information and analysis contained herein are based on sources considered as reliable. Sygnum Group uses its best efforts to ensure the timeliness, accuracy, and comprehensiveness of the information contained in this document. Nevertheless, all information indicated herein may change without notice.


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