Erebor Bank, a new financial institution backed by Anduril co-founder Palmer Luckey, initially offered clients free conversion of USDC and USDT stablecoins into US dollars at face value. This policy aimed to attract crypto-focused firms by eliminating standard redemption fees, which typically cost either $1,000 or 0.1 percent per transaction.
Professional trading firms, including Wintermute and Galaxy Digital, exploited this offer by purchasing stablecoins at a discount and redeeming them at full value through the bank. These arbitrage trades allowed firms to profit from price differences on large volumes of assets. Following these activities, Erebor Bank restricted the service by introducing volume-based fees and limits for clients without significant deposits.
The bank is currently preparing to close a fundraising round of $1.5 billion, which values the company at $8 billion pre-money. Erebor Bank holds approval from the FDIC to serve technology, payment, investment, and defense sectors. Despite the incident, Wintermute confirmed that it maintains an ongoing business relationship with the institution.
