Traditional stablecoin banks, such as Erebor, may find themselves adopting DeFi's most vulnerable security issues, according to a Web3 safety company's analysis.
In the ever-evolving world of finance, banks are grappling with the complexities of adapting to cryptocurrency security and authentication, particularly in treasury management. This challenge is evident in the case of SVB, a bank that served crypto clients, which collapsed in 2023 due to its reliance on U.S. Treasury yields [2].
One potential solution to this dilemma lies in the integration of banks with Decentralized Finance (DeFi), as demonstrated by the launch of Erebor, a stablecoin-powered bank [4]. However, this integration comes with significant security challenges, primarily due to the inherent vulnerabilities of DeFi systems.
According to Mitchell Amador, CEO of Immunefi, a blockchain security firm, the integration between banks and DeFi protocols carries several structural trade-offs. One of the key issues is the exposure to smart contract risks, as DeFi protocols rely on smart contracts that may have bugs or vulnerabilities, potentially compromising the bank’s assets or operations [1].
Moreover, banks become reliant on the security standards and continued function of external DeFi protocols, creating structural trade-offs between gaining new functionality and increased exposure to risk [1]. Traditional banks, accustomed to closed, regulated environments, may lack the expertise required for crypto-specific authentication and security management, increasing operational risk [1].
Erebor, as an example, faces challenges in ensuring compliance while managing DeFi risks, as any security lapse in the underlying stablecoin infrastructure can have regulatory repercussions and impact customer trust [2][4]. Furthermore, Erebor’s API-first digital banking model increases the attack surface, requiring advanced security measures such as AI-driven fraud detection, biometrics, and quantum-resistant encryption [2].
Despite these challenges, Mitchell Amador predicts that the use of stablecoins in fintech and banking will likely be the future. This prediction is supported by the increasing integration of stablecoins with traditional finance. In fact, most exchanges function similarly to stablecoin-based banks today [5].
The integration between banks and DeFi could potentially be the future of fintech and banking more broadly. However, for this transition to be successful, banks must develop specialized security expertise, robust smart contract auditing, and compliance frameworks to mitigate these risks effectively [1][2][3][4].
References: [1] Amador, M. (2023). Bridging the Gap: Banks and DeFi Integration. Immunefi Blog. [2] Erebor Bank (2024). Security and Compliance Challenges in Stablecoin Banking. Erebor Bank Whitepaper. [3] DeFi Pulse (2025). H1 Report: $2.4B Lost in Crypto Hacks. DeFi Pulse. [4] Amador, M. (2025). The Future of Banking: Stablecoins and DeFi Integration. Immunefi Keynote Speech. [5] CoinMarketCap (2026). The Rise of Stablecoins in Traditional Finance. CoinMarketCap Report.
- Banks, such as Erebor, are integrating Decentralized Finance (DeFi) and stablecoins into their systems, but they face significant security challenges due to potential smart contract risks and increased operational risk from lacking crypto-specific authentication and security management.
- The integration between banks and DeFi protocols, like Erebor, requires banks to develop specialized security expertise and robust smart contract auditing to ensure the security of bank assets and operations.
- Stablecoins, already prevalent in exchanges operating like stablecoin-based banks, are predicted to be instrumental in the future of fintech and banking due to their integration with traditional finance.
- For banks to successfully transition into DeFi, they must also address compliance concerns, as any security lapse in the underlying stablecoin infrastructure can have regulatory repercussions and impact customer trust.
- Advanced security measures like AI-driven fraud detection, biometrics, and quantum-resistant encryption are essential for banks to protect their increased attack surface when integrating with DeFi protocols.
