It’s a subtle thing. It sounds like the money is safe. And it really is safe in the way that the FDIC handles: the depositor is protected in the event of a bank failure. It’s just that the depositor in this case is Yotta, not their customers, and there are potential problems beyond failures of the banks holding the money.
Note that this general scheme of “we’re not a bank but we’re as safe as a bank because we put your money in real banks” is not completely crazy and is sometimes used by serious financial institutions. For example, Fidelity offers a cash management account that works this way. So it’s not an immediate red flag on its own.
Now if Synapse had created individual accounts for the Yotta depositors, we wouldn't be talking now. But what happened was Synapse had a few account(s) for Yotta and a bit of a records gap, which it seems is making it hard to tie Yotta depositors to their money. What's unclear is if this is a Synapse issue, a Yotta issue or something else.
But the fact that there is this accounting issue shows that there is a gap in how FinTechs are actually managing cash flows, to the risk and detriment of their customers/depositors.
Thanks for the detail.
Co-mingled funds lose FDIC insurance pretty quickly (via the cap) since the FDIC limits are per depositor per bank, so commingling is the best way to lose protection -- hard to see how anyone in leadership wouldnt see this issue.
I dont understand how this would happen, how could a bank claim to be FDIC insured but not actually be FDIC insured? If false claims like this can happen, wouldnt that be fraud...in which case why arent the well capitalized backers and Directors of Yotta in legal trouble?
Also, what prevents any bank from claiming to be FDIC insured and not be FDIC insured? I went on the FDIC site and it isnt even clear how someone would verify they are FDIC insured. It seems customers would run from tiny banks if this were the case, because then nothing could be trusted.
Finally, the entire affair needs to be handled incredibly seriously by the regulators (though it doesnt seem to be the case). Because it makes me question the entire system -- and makes me wonder about any fintech. For example, i'm wondering now -- is Wealthfront actually SIPC insured as they claim (https://support.wealthfront.com/hc/en-us/articles/211004063-...)