The Synapse fintech collapse exposes critical verification gaps that threaten billions in banking-as-a-service customer funds
When four Democratic senators, including Elizabeth Warren and John Fetterman, demanded Federal Reserve records related to Synapse’s collapse last month, they highlighted a truth that has been hiding in plain sight: verification failures, not just regulatory gaps, are at the heart of modern financial crises.
The $96 Million Verification Failure
Synapse, a Silicon Valley startup that connected fintech companies to traditional banks, filed for bankruptcy in April 2024, leaving up to $96 million in customer funds unaccounted for. This wasn’t a failure in some experimental crypto protocol, it occurred in supposedly “regulated” banking infrastructure that millions of Americans relied on daily.
“There were several troubling warning signs that should have prompted immediate supervisory and enforcement intervention from the Federal Reserve,” the senators wrote in a letter sent to Federal Reserve Governor Michelle Bowman regarding the Synapse collapse. But by the time regulators might have stepped in, it was already too late for customers who lost their life savings.
Banking-as-a-Service: A Verification Blindspot
The Synapse catastrophe exposes the fundamental verification problem in Banking-as-a-Service (BaaS) models. As an intermediary between fintech startups and federally regulated banks like Evolve Bank & Trust, Synapse managed the flow of hundreds of millions of dollars with inadequate record-keeping systems and limited oversight. The complex web of accounts spanning multiple banks created a perfect environment for funds to disappear without clear accountability.
Most troubling is that many affected customers believed their money was protected by FDIC insurance, not understanding that such protection typically doesn’t extend through intermediaries like Synapse. The regulatory blindspot created by this arrangement left both fintech companies and their end users extraordinarily vulnerable.
The lesson here isn’t simply “buyer beware” or a call for more regulation—it’s that our financial infrastructure requires a fundamental rethinking of how verification happens in multi-party systems. Waiting for quarterly audits or regulatory examinations is insufficient when millions can vanish through poor record-keeping or mismanagement.
Building a Verification-First Financial System
What’s needed is real-time, independent trustless verification technology that can validate fund movements, create transparent audit trails, and provide cryptographic proof of account balances across complex financial systems. This verification layer must operate continuously, not just during periodic audits, to provide the transparency that modern financial infrastructure demands.
Web3 verification technologies address precisely these vulnerabilities. By creating tamper-proof transaction records and independently verifying financial data flows, decentralized verification systems can help prevent future Synapse-style collapses. Advanced verification solutions ensure that interactions between financial systems are cryptographically documented, providing permanent evidence that remains accessible and verifiable long after transactions occur. This transparency allows all stakeholders—from customers to regulators—to independently confirm the accuracy of critical financial data rather than relying solely on trust.
Trustless verification can transform how the financial ecosystem operates. Banks gain the ability to independently verify third-party claims about fund movements in real time. Regulators receive unprecedented transparency into complex financial flows. Customers access transparent proof of their account status. And fintech companies build on a foundation of verifiable trust rather than opaque promises.
As lawmakers and regulators scramble to close the gaps exposed by Synapse’s failure, financial institutions shouldn’t wait for new rules. The technology to prevent these catastrophes already exists. Verification is more than just a regulatory checkbox—it’s the missing link that can restore trust in our increasingly complex financial system.
The Synapse failure reminds us that in finance, trust without verification is merely hope. And hope is not a strategy when people’s life savings are at stake.
Learn how Truebit’s verification technology can help your financial institution establish trustless verification processes that protect both your business and your customers. Contact us for a demonstration.
