My wording was ambiguous. They didn’t lie about storing your funds in real banks. That part was true. The lie was the implication that this made your funds safe.
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.
More to the point, FDIC insurance covers a BANK failure; but in this instance it wasn't the bank that failed. It doesn't even seem it was Yotta that had the issue, but rather their transaction company, Synapse.
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.
It’s not just a matter of tying depositors to their money. There’s something like $100 million that’s actually missing. It’s not clear whether it’s just a matter of finding the accounts or whether it’s actually been stolen somehow. Synapse managed the money. They say it’s with Evolve Bank & Trust, but Evolve says they don’t have it. It seems likely that it was moved and they just lost track, but that doesn’t seem to be entirely known yet.
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.