By Ray Birch
DALLAS—The head of a crypto exchange is urging credit unions to recognize it’s never been more important to have sound knowledge of cryptocurrency and the platforms before entering into any sort of a partnership. Not having that knowledge can lead to potential some bruising of a CU’s reputation, he said.
“With all the turmoil that's happening in the markets and all the uncertainty around cryptocurrency, credit unions don't want to get into a situation where they partner with a Celsius or an FTX,” said John Wingate, president and CEO of crypto platform Bank Social.
Wingate noted many credit unions are still learning about the differences between custodial crypto wallets and non-custodial wallets.
“Once they understand, and they get the knowledge they need to make a decision, credit unions can decide what makes sense for them,” said Wingate. “Credit unions are already risk averse, and they don’t want to suffer any reputational damage from working with a crypto exchange.”
Wingate further noted, as have several credit unions that have begun offering cryptocurrency services, the membership have already indirectly helped the organization make its decision.
Members are Walking
“Financial institutions, in some cases, are seeing 10% of their total assets per year go out to crypto platforms,” said Wingate. “We're seeing some very high numbers, and this money doesn't come back in.”
Wingate said Bank Social has been working with the federal regulator on the broad topic of cryptocurrency.
“We’ve been involved with the NCUA for the last nine months, helping the agency understand the difference in risk that a self-custody wallet offers versus a custodial exchange,” he told CUToday.info. “With a custodial exchange, what happens to members’ crypto investments if the platform fails? What if the platform is hacked? There's so many questions to be asked and answered on the custody side. Self-custody is more transparent.”
The Difference in Wallets
With a custodial crypto wallet, consumers do not own the keys to their cryptocurrency and the platform controls the funds. That has led to losses among consumers connected with failed platforms such as FTX, and to the saying, “no keys, no crypto.”
With a non-custodial crypto wallet consumers control their digital money, not the crypto platform, and own the currency from day one. Bank Social offers a non-custodial wallet.
Wingate emphasized the importance of credit unions taking time to make a decision on whether they will have an offering in the crypto space, and if so, with whom. It’s not a short-term decision, “because once you move forward with your membership, you have their trust at stake and there is no turning back,” he said.
John Wingate
Bank Social launched in October of 2022 to the public, with Wingate reporting more credit unions are signing up for the service, especially after the problems with failures of several large crypto platforms, which were custodial exchanges
The FTX collapse put a lot of people “on pause,” at least for custodial exchanges, said Wingate, who added that four credit unions were on board with Bank Social at the close of 2022 and now there are more than 15.
“We've had a tremendous uptick in the amount of people getting engaged and wanting to implement this service,” he said.
Avoiding a ‘Blow Up’
Wingate praised NCUA for being forward-looking in embracing cryptocurrency and allowing credit unions to be free in their ability to implement a solution.
“I would just do your best to evaluate (a crypto platform) from a position of knowledge, and ensure that whatever they’re doing is looked at, first, from a risk standpoint,” he said. “We know that brand risk is a big thing. You know if we have one big blowup (that involves credit unions) that NCUA is going to pull back on the reins. So, we can't have a blowup. It’s still early, very early. My biggest point that I try to get across to credit unions is that when you're evaluating solutions, do it from a base of knowledge and choose the best solution for you. We're not trying to sell a solution as much as we are trying to help credit unions understand crypto solutions.”
Wingate also emphasized the importance of helping members understand the difference between a custodial wallet and a non-custodial wallet, because the CU’s reputation could suffer if they don’t.
“Some members have just been buying crypto without really knowing anything about it,” explained Wingate. “They don’t know any better. And then, when something goes wrong and the money is gone, they call the credit union and say, ‘Hey, I thought that crypto was mine.’ And then you have to say no, you signed a little piece of paper that said it was not.”
A Prediction for What’s Next
While making money and helping members with their initial crypto needs has been the initial focus of CU/crypto partnerships, what’s next, predicted Wingate, will be the use of the digital money platform to help the underbanked.
“We’ve been using the current paradigm, using blockchain distributed ledger as a buzzword, as marketing words…,” said Wingate. “But the next wave is really about how do we use this this new technology to provide more enablements, to provide more financial services access to reduce the amount of poverty—to bring the unbanked or underbanked more services, better services.”