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Palmer Luckey Backs Crypto-Friendly Banking Startup ‘Erebor’
Palmer Luckey, the founder of defense contractor Anduril, is supporting a new, crypto-integrated banking startup called “Erebor,” aiming to revolutionize the financial services sector. This venture seeks to offer stability, especially for tech entrepreneurs, by prioritizing their business growth rather than focusing solely on maximizing deposit returns. The ambitious project comes as the world embraces financial technology.
Aiming to Redefine Silicon Valley Banking
The nascent financial institution, tentatively named “Erebor” after the dragon’s lair in “The Hobbit,” intends to cater to the specific needs of Silicon Valley. This moniker is still subject to change, sources indicate.
Integrating Stablecoin Deposits
Beyond traditional currency, Erebor plans to manage deposits in stablecoin. Stablecoins are digital currencies designed to maintain a stable value by being pegged to assets like the US dollar or gold.
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Partnership with Joe Lonsdale
Luckey, renowned for creating the Oculus VR headset with a net worth estimated at $3.6 billion by Forbes, has partnered with tech investor Joe Lonsdale on this banking venture.
- Lonsdale’s venture firm, 8VC, is spearheading a $225 million funding round.
- These funds will address the regulatory requirements for launching a bank, sources say.
The startup’s valuation following the fundraising round is currently undisclosed.
Neither Luckey nor Lonsdale representatives provided immediate comments, although both are expected to secure seats on the firm’s board.
The Erebor project remains in preliminary stages, with plans subject to modifications and a launch date pending, according to sources.
Luckey’s Role and Startup Origins
While a co-founder, Luckey is not anticipated to hold an executive position or manage the day-to-day functions of Erebor. Additional co-founders and venture firms involved in the initial funding remain unnamed.
Discussions surrounding Erebor commenced following the 2023 collapse of Silicon Valley Bank (SVB), once perceived as the primary financial institution for technology startups and venture capital firms.
SVB’s downfall occurred amidst rising interest rates, leading to a capital shortage that prevented clients from accessing funds and processing payroll. Federal intervention eventually guaranteed deposits to mitigate a wider economic crisis.
Stablecoin’s Role in 24/7 Banking
By providing stablecoin deposit options, Erebor aims to ensure uninterrupted service availability, even on bank holidays, thereby providing more flexibility for agile startups, sources claim.
Adoption of Stablecoins
Stablecoins have experienced heightened acceptance recently, coinciding with President Trump’s move towards a less stringent regulatory approach concerning digital currencies.
These digital assets are viewed as potentially less unstable investments when compared to cryptocurrencies like Bitcoin. Congress is considering the GENIUS Act, designed to institute a regulatory framework for stablecoins.
Alternative to Traditional Banking Models
Luckey and his associates are also exploring alternatives to conventional fractional reserve banking systems, in which banks allocate the majority of client deposits while retaining a modest reserve.
The group prefers a conservative balance sheet and has considered setting a maximum loan-to-debt ratio, possibly around 50%, according to sources with knowledge of internal conversations.
One proposed model involves a bank account that guarantees one-to-one deposit coverage, ensuring assets stored at Erebor remain untouched, as indicated by sources.
Luckey’s Expanding Portfolio
This startup signifies another endeavor for Luckey. His firm, Anduril, has become a direct competitor to established defense contractors, including Lockheed Martin and Northrop Grumman. Anduril’s valuation recently reached $30.5 billion after a round supported by Peter Thiel’s Founders Fund.
The name Anduril itself is also a reference from “The Lord of the Rings,” referring to the sword of the character Aragorn.
Luckey previously sold Oculus VR to Facebook in 2014 for $2 billion. The technology entrepreneur was controversially terminated from Facebook in 2017 after donating $10,000 to a pro-Donald Trump organization.
Reconciliation with Meta
In a notable development, Luckey recently resolved his dispute with Meta’s Mark Zuckerberg.
The two jointly revealed a partnership between Meta and Anduril aimed at co-developing AI-driven augmented and virtual reality technologies for the US military.