Frgmnt CEO Says Fiat-Backed Stablecoins May Remain Exposed to Banking Risks

Frgmnt CEO Aurélien Roussel said fiat-backed stablecoins may remain exposed to banking disruptions because their reserves and direct redemptions depend on off-chain institutions. The March 2023 Silicon Valley Bank collapse illustrated that risk.

Roussel, Frgmnt’s co-founder and CEO, made the case in an interview published Oct. 17. He urged issuers to diversify banking relationships, segregate reserves, provide real-time attestations and maintain backup liquidity and redemption channels. He warned that “individual banking counterparties can fail.”

Fiat-backed tokens can transfer across blockchains, but that mobility does not give holders direct access to reserves. Issuers rely on banks and other off-chain institutions to hold assets backing a peg and process direct redemptions. Those channels can be disrupted even while a token remains transferable.

Silicon Valley Bank (SVB) entered resolution on March 10, 2023, after withdrawals topped $40 billion in a single day. At 10 p.m. ET (3 a.m. UTC March 11), $3.3 billion of Circle’s USDC backing—about 8% of its roughly $40 billion in reserves—was inaccessible because it was held at SVB.

USDC fell to a low of 86 cents during the episode. U.S. officials announced a depositor backstop March 12 at 6:15 p.m. ET (10:15 p.m. UTC March 12). Circle resumed redemptions March 13, and USDC later regained its $1 peg.

Stress also spread through links between tokens. Dai (DAI) had a one-to-one exchange facility with USDC, which carried pressure into Dai and other stablecoins, including some with no direct exposure to SVB. Circle’s ability to issue USDC and honor direct redemptions followed U.S. bank operating hours during the crisis. Those services are separate from retail trading on secondary markets, where tokens change hands between traders.

This difference can matter when a bank is closed or a reserve account becomes inaccessible: users may still trade a token while direct redemption depends on the issuer’s banking channels. The SVB episode illustrates one transmission path and does not show that every stablecoin has the same bank exposure. Roussel’s proposals emphasize contingency plans and clearer reserve visibility.

Frgmnt’s fUSD is a dollar-pegged token backed 1:1 by a diversified pool of stablecoins. Users can mint fUSD by depositing USDC, Dai or Tether (USDT).