U.S. financial disasters often emerge from overheated markets that become far too enamored with shiny new financial instruments. A June 6 report by the trustee in the bankruptcy of the financial technology company Synapse tells just such a story — and should be seen as a warning about future financial crises driven by the exuberance over all things technology.
Synapse was launched in 2014 as a tech intermediary company, linking emerging fintech companies with the online products they need to offer customers the ability to purchase cryptocurrencies, budget, save, invest, manage cash, and make payments online through glitzy apps. Synapse opened 100,000 demand deposit accounts with four FDIC-insured banks, with end users’ balances totaling $265 million.
Those “depositors” naturally wanted their money when Synapse filed for bankruptcy in May, assuming it was insured by the FDIC. But according to the trustee’s report, around $85 million disappeared somewhere between the fintechs’ and the banks’ ledgers. Echoing criticisms we heard all too often about FTX’s record keeping, at least one bank partner told the trustee that “Synapse’s proprietary ledger system is difficult to interpret without expertise from persons familiar with the system.”
Fintech and........