What is a crypto bank?

A crypto bank functions similarly to traditional banks but caters primarily to the financing of cryptocurrencies and related services. They serve cryptocurrency-related companies, providing essential services such as holding securities and managing large, unregulated monetary transactions. For example, a stablecoin like USDC requires the backing of real-world assets, and crypto banks may hold these assets. They also serve as platforms for complex crypto activities that typically wouldn't exist in the conventional banking scene but have emerged due to the digital finance and cryptocurrency environment 1.

Additionally, these banks may engage in other traditional financial activities such as lending and receiving deposits from crypto entities, exposing them to unique risks associated with the volatile cryptocurrency market. However, unlike traditional banks, they operate largely in the cryptocurrency ecosystems and handle digital assets, often without the same level of government regulation or protection like FDIC insurance seen in traditional banking 1 2.