Gate.io Blog Unbanked Faces Closure Due to regulatory Hurdles and Funding Challenges

Unbanked Faces Closure Due to regulatory Hurdles and Funding Challenges

12 June 15:25

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## TL；DR

Unbanked has stopped operations due to the harsh regulatory environment in the United States as well as the financial challenges it is facing

Unbanked has encouraged its customers to withdraw their funds which include USD and cryptocurrencies

The current unfriendly crypto oversight in the United States has forced many crypto firms to relocate to other countries.

## Introduction

The year 2023 will be remembered for the closure of many financial institutions that offer crypto services and for the stringent regulatory oversight of the United States government on digital assets and the cryptocurrency sector. In the first quarter, several USA based banks [including Silvergate](https://www.gate.io/learn/articles/what-is-silvergate/509 "including Silvergate") and [Silicon Valley Bank closed](https://www.gate.io/blog_detail/2303/svb-crash-caused-the-butterfly-effect-in-the-crypto-market-what-should-investors-do "Silicon Valley Bank closed") down due to financial mismanagement and the unfavourable economic environment. Today, we discuss other imminent closures of institutions like Unbanked which offer various services to the crypto sector.

Read also: [Crashing Banks Push Crypto towards a bull market](https://www.gate.io/blog_detail/2397/crashing-banks-push-crypto-towards-a-bull-market "Crashing Banks Push Crypto towards a bull market")

## Unbanked to close down

Unbanked, the owner of the UNBK token and a provider of various financial services, recently announced its intention to close down due to unfriendly regulatory environment and financial challenges. [It said](https://unbanked.com/unbanked-will-be-winding-down/ "It said"), “**Today, we are making the unfortunate decision to wind down Unbanked.  When we started the company back in 2018 we knew blockchain was the best way to transmit value in the form of cryptocurrencies or stablecoins.**”

According to Unbanked, it exhausted all possible options to sustain the business. It said, “**This decision to wind down Unbanked has not come lightly, but we have exhausted all options. The closure has not come from a lack of effort in exploring any and all viable options from our team.**”

Generally, the crypto regulatory situation in the United States has been hostile which forced several crypto firms to close down. On 9 May Unbanked, the crypto financial service provider, announced its planned closure.

Some of the financial services which Unbanked offered include bank accounts and cards. It also enabled investors to buy and sell cryptocurrencies in a convenient manner as well as supporting the distribution of staking rewards. Since its inception in 2019, Unbanked offered financial services to US based and international entities. Basically, it had 25 companies in different countries that used its service.

## Regulatory challenges

It is important to note that the regulatory and economic challenges in the United States affect many crypto firms around the world even if they do not have direct businesses in that country. This is because the critical activities taking place in the USA affect global events as other countries follow its footsteps and also due to the contagion effect.

Basically, the United States is working hard to stop Fintech companies and financial institutions like banks from offering crypto services or to support firms that provide cryptocurrency products and services. It does not matter to the Federal government whether or not these financial service providers abide by its legislation or not. The country has been cracking down on financial service companies that support crypto products, forcing them to shut down or relocate to countries with friendly crypto regulation.

In a recent [blog post Unbanked said](https://unbanked.com/unbanked-will-be-winding-down/ "blog post Unbanked said"), “**US regulators are actively trying to stop companies (banks and fintechs) from supporting crypto assets – even when the companies are trying to do it correctly and by the book.  Their efforts are working and ultimately limit Unbanked’s ability to raise capital and run a self-sustaining business.**”

Unbanked made it clear that it had been abiding by most regulatory requirements in the United States. However, such compliance contributed to high costs that weighed down the business.

It said, “We believed that building Unbanked on-shore in the United States would be the smart long-term play.  While other crypto companies grew rapidly off-shore by avoiding strict regulation, we believed that engaging with regulators and following their arduous processes would ultimately position Unbanked to come out ahead.  We unfortunately learned this was not the case and taking this path leads to a lot of wasted time and excessive costs.”

Unbanked has not been the only institution that deals with crypto assets that has been negatively impacted by the regulatory hurdles affecting the sector in the United States. BottlePay, HotBit, Beaxy, Bittrex, Teressa and TradeBlock are just a few other crypto firms that shut down operations due to stringent regulatory conditions.

Read also: [Cryptocurrency laws in United States and other countries](https://www.gate.io/fr/blog_detail/384/ "Cryptocurrency laws in United States and other countries")

For example,  HotBit said that it closed down following the investigation on most of its team members by the United States regulatory authorities . Bittrex, which filed for Chapter 11 bankruptcy in a federal court in Delaware, stated that the regulatory environment is one reason for its decision to stop operations. However, only the US arm of the firm filed for chapter 11 bankruptcy.

The closure of Bittrex came after it received a Wells notice from the Securities Exchange Commission (SEC). This Wellness Notice was given to Bittrex on the basis that it was operating as a broker dealer, a clearing house and a crypto exchange without registration. On top of this, the SEC listed OMG, ALGO and DASH as crypto securities.

Sadly, in the first quarter of 2023 the Securities Exchange Commission launched several regulatory enforcement actions against key players in the crypto sector which include Coinbase. On the other hand, the SEC is still pursuing its case against Ripple. These examples show SEC’s commitment to stifle the growth of the cryptocurrency sector by forcing some crypto firms to shut down.

## Unbanked’s financial situation

Unbanked’s financial situation has added constraints to its business viability. Recently, a co-founder of the company said that they were  expecting additional funding to prop up their business operations. Nevertheless, it has not received the expected financial injection. The firm believes that the current regulatory situation may have caused the deal to collapse.

The  company explained, “Three weeks ago Unbanked signed a term sheet for an investment of $5 million dollars at a $20 million valuation that would allow us to not only continue operations but to expand. We have not received those funds as of this moment.”

As a result of the current state of things, Unbanked has implored its customers to withdraw their funds before it shuts down. It said, “All Unbanked customers and those through our white-label programs should begin withdrawing all funds (crypto and USD) as soon as possible.”

## USA regulatory landscape puts strain on crypto companies

Since [the collapse of FTX](https://www.gate.io/explore/ftx-sbf "the collapse of FTX") the United States has been cracking down on many crypto firms it believes do not conform with its crypto regulations. Basically, it is closely monitoring the legacy banking system as well as non-traditional banks.

Read also: [How are cryptocurrencies currently regulated in countries around the world?](https://www.gate.io/th/blog_detail/378/how-are-cryptocurrencies-currently-regulated-in-countries-around-the-world "How are cryptocurrencies currently regulated in countries around the world?")

The crypto community is accusing Gary Gensler, the Chairman of SEC, for his continued aggression against cryptocurrencies. This is because over the past few months, the SEC charged several crypto firms for their failure to follow legislation that governs virtual assets, especially cryptocurrencies. For example in January SEC charged [Genesis Global Capital, LLC and Gemini Trust Company](https://www.sec.gov/news/press-release/2023-7 "Genesis Global Capital, LLC and Gemini Trust Company") for selling unregistered securities. It also placed charges against Kraken for the same offence. 
 
Many crypto insiders, therefore, believe that SEC’s action will stifle innovation in the crypto sector, force other firms to close down and lead fintech companies to relocate to countries with crypto friendly legislation.

Apart from the SEC, there are other government agencies that are fighting against cryptocurrencies. As an example, recently the Office of the Comptroller of the Currency (OCC), The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) [warned banks against liquidity risks](https://www.axios.com/2023/02/23/major-banking-authorities-say-stablecoin-reserves-pose-liquidity-risk "warned banks against liquidity risks") associated with stablecoins.

During the first quarter of 2023 New York Department of Financial Services ordered Paxos, the issuer of <a href="/price/binance-usd-busd" target="_blank" class="blog_inner_link">Binance USD</a>, to stop additional minting of the stablecoin. Overall, the crackdown on crypto firms in the United States has forced many crypto companies to relocate to other countries.

Brad Garlinghouse, [the CEO of Ripple, told Bloomberg](https://www.bloomberg.com/news/articles/2023-03-02/ripple-ceo-garlinghouse-expects-a-decision-on-sec-suit-this-year#xj4y7vzkg "the CEO of Ripple, told Bloomberg") that the “crypto industry” has started moving from the USA to other countries.

Read also: [The Pros and Cons of Crypto and Blockchain-related Regulation](https://www.gate.io/blog_detail/1396/the-pros-and-cons-of-crypto-and-blockchain-related-regulation "The Pros and Cons of Crypto and Blockchain-related Regulation")

## Conclusion

Unbanked, the financial services provider, announced that it intends to close down its operation due to the unfriendly crypto environment in the United States and its limited financial resources. In fact, the current regulatory situation in the USA has forced many crypto companies to either close down or relocate to other countries.

## FAQS for Unbanked

**What is Unbanked?**

Unbanked is a financial services provider that offers products and services that cater for the crypto sector. Its key products are bank cards and bank accounts as well as facilities for the distribution of staking rewards.

**When are people unbanked and what options do they have for financial services? **

Unbanked refers to adults who do not have access to traditional financial services like bank accounts and credit cards. These people have the options to use cryptocurrencies, money orders, payday loans, non-traditional lenders and cheques.

**What is the difference between a bank and a financial service provider? **

A bank is a financial institution that accepts deposits and offers loans to its customers. On the other hand, a financial service provider focuses on managing its customers’ funds through insurance, investments and other means.

**Does the USA regulate cryptocurrency? **

The United States uses its existing financial laws to regulate cryptocurrency. The Bank Secrecy Act (BSA) is the main financial piece of legislation the USA used to regulate cryptocurrencies.

**What are crypto-asset service providers? **

Crypto asset service providers are institutions that administer cryptocurrencies on behalf of third parties.These include firms that offer services for the conversion of cryptocurrencies to fiat currencies and vice versa as well as providing custody for such digital assets.

<div class="blog-details-info">
<div>Author:** Mashell C. **, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>

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TL；DR

Introduction

Unbanked to close down

Regulatory challenges

Unbanked’s financial situation

USA regulatory landscape puts strain on crypto companies

Conclusion

FAQS for Unbanked

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