Stablecoin Banking Model Faces Scrutiny: KYC Gaps and Yield Concerns Echo Past Failures

Source: CryptoNewsNet Original Title: Coinbase Ventures-Backed Stablecoin Bank Triggers Terra UST-Style Fears Original Link:

Kontigo’s Rapid Rise and Growing Skepticism

A new bank building its entire identity around stablecoins is rapidly climbing the ranks of the financial services industry. Kontigo positions itself as a stable-currency platform offering self-custodial wallet services that allow users to store value in Bitcoin and spend in local stablecoins, with all transactions recorded on the blockchain.

Recently, Kontigo announced a $20 million seed funding round to pursue its ambition of building the world’s largest bank. The company claims to have crossed $30M in annual revenue, $1B in payment volume, and 1M users in under 12 months with a minimal team. The leadership team describes Kontigo as the fastest-growing stablecoin neobank globally, offering features such as 10% yield on digital dollars, stablecoin-linked cards with Bitcoin cashback, and investment in tokenized US stocks.

Prominent institutional investors, including Base and certain venture capital firms, back the company. The leadership team says Kontigo aims to expand access to basic financial services to nearly 5 billion people worldwide.

However, despite gaining significant traction almost immediately, Kontigo has also faced skepticism within the crypto community. Some observers questioned whether it represents a familiar crypto narrative that has previously generated catastrophic consequences for the broader market.

No-KYC Access Raises Red Flags

Among the various benefits Kontigo has highlighted, the company has emphasized that users from anywhere in the world can open an account and begin transacting in USDC or USDT without having to comply with Know Your Customer (KYC) requirements.

While this approach may appear less bureaucratic on the surface, it quickly raised concerns among users and industry observers. KYC rules are designed to protect financial institutions from bad actors by requiring identity verification and confirmation of customer legitimacy.

Without such safeguards, both financial platforms and users face increased exposure to risks of fraud, money laundering, and terrorist financing.

Within the crypto industry, the absence of KYC standards has previously proven harmful. Notably, Terraform Labs co-founder Do Kwon was recently sentenced to 15 years in prison for orchestrating a $40 billion cryptocurrency fraud. Terra’s ecosystem operated without meaningful KYC controls, enabling vast sums of capital to enter the system anonymously and at scale.

When confidence in its algorithmic stablecoin unraveled, that absence of oversight intensified the run on the network, limited transparency around fund flows, and amplified losses for millions of users. The case underscored how the lack of basic safeguards can transform rapid expansion into systemic collapse.

Yield Promises Face Credibility Questions

Kontigo’s CEO clarified that the 10% yield on USDC holdings comes from lending through DeFi protocol Morpho, exposure to US Treasury bills, and custody or yield-related services via certain platforms.

Yet, critics said the numbers did not add up, raising concerns over the credibility of Kontigo’s advertised promises. Yields from these sources typically range between 3% and 7% annually, even when combined under current market conditions. This gap of 3-5% between claimed yields and available sources raises questions about how the platform can sustainably offer such returns.

Skeptics questioned the sources of Kontigo’s 10% return, pointing to the possibility of undisclosed risk, leverage, or opaque strategies.

Meanwhile, another user reported that a USDC transfer had not been credited to their wallet several hours after its initiation. For platforms that position themselves as banks or payment infrastructure, even short delays in fund availability can erode user confidence. Reliability and timely settlement are foundational expectations, regardless of transaction size.

The Path Forward

As Kontigo scales, its long-term credibility will depend less on growth claims than on execution and earned user trust. In a sector shaped by past failures like Terra, the company now faces mounting pressure to show that rapid expansion can be sustained without repeating the mistakes that have defined earlier crypto collapses.