Erebor Bank absorbed financial losses following the exploit of its free stablecoin-to-dollar conversion service. The new national bank focuses on the technology and cryptocurrency sectors.
The service offered a guaranteed 1-to-1 swap for stablecoins including USDC and USDT. Erebor Bank intended the feature to attract institutional clients by bridging digital assets and fiat currency.
Trading firms Wintermute and Galaxy Digital reportedly used arbitrage to profit from the offer. These firms purchased stablecoins below $1.00 on the open market and redeemed them at the bank for exactly $1.00.
Erebor Bank covered the resulting financial losses. The incident prompted scrutiny of the bank's risk management protocols, though the broader stablecoin market remains unaffected.