Stablecoin Banks Inherit DeFi Risks as Traditional Finance Integration Expands

Erebor, a new stablecoin-powered bank backed by prominent investors like Palmer Luckey and Palantir’s Joe Lonsdale, is stepping into the void left by SVB's collapse. Yet, the MOVE highlights a growing concern: the inherent risks of merging decentralized finance (DeFi) with traditional banking systems.

Mitchell Amador, CEO of Web3 security firm Immunefi, warns that while stablecoin integration offers banks enhanced functionality, it also exposes them to DeFi's vulnerabilities. "Banks relying on stablecoins become dependent on the broader ecosystem—its standards, smart contracts, and security flaws," he says. The trade-off between interoperability and risk is stark.

Unlike traditional banking systems such as SWIFT or Fedwire, DeFi protocols operate in open, permissionless environments. This shift demands that banks rapidly adapt to DeFi’s security challenges—a steep learning curve for institutions accustomed to closed, regulated frameworks.