Tech titans back Erebor Bank with $250M+ for crypto, AI, and defense startups

Tech titans Palmer Luckey and Joe Lonsdale are backing Erebor Bank, a new financial institution targeting crypto, AI, and defense startups in the wake of Silicon Valley Bank’s 2023 collapse. The venture aims to fill a critical gap in specialized banking services for high-risk frontier industries, leveraging the Trump administration’s deregulatory stance toward crypto-friendly banking.

What you should know: Erebor Bank has filed for a national bank charter with backing exceeding $250 million from prominent tech investors and firms.

• Palmer Luckey (Anduril cofounder), Joe Lonsdale’s 8VC, Peter Thiel’s Founders Fund, and crypto-focused Haun Ventures are among the key investors.
• The bank’s name follows the Tolkien naming convention used by Anduril and Palantir, referencing the mountain where Smaug hoarded treasure in The Hobbit.
• Leadership includes experienced bank executive Michael Hagedorn as president and co-CEOs Owen Rapaport (Aer Compliance cofounder) and Jacob Hirshman (former Circle executive).

The big picture: Erebor represents part of a broader wave of crypto-focused banking applications following Trump’s return to the White House and subsequent regulatory rollbacks.

• The Trump administration has reversed Biden-era rules limiting banks’ use of stablecoins and dollar reserves for stablecoin providers.
• Regulators are now reviewing new bank applications with an “open mind,” potentially accelerating approval timelines from over a year to four to six months.
• Companies like Circle, Ripple, BitGo, and Coinbase are also pursuing banking charters in this friendlier regulatory environment.

Target market: The bank plans to serve startups in crypto, AI, and defense—industries Erebor claims are “not well served by either traditional or disruptive financial institutions.”

• Intended clients include wealthy and ultrawealthy consumers working in these frontier industries.
• The bank will also assist foreign banks with dollar-based activities.
• Erebor promises to maintain a conservative balance sheet to account for risks associated with lending to frontier industries.

Crypto ambitions: Erebor aims to become “the most regulated entity conducting and facilitating stablecoin transactions” and facilitate “broader acceptance of stablecoins.”

• The bank plans to accept cryptocurrencies as collateral for some loans.
• It could potentially serve as a clearing house for blockchain-based government activities, given the founders’ defense contracting experience.

In plain English: Stablecoins are cryptocurrencies designed to maintain steady value by being tied to traditional currencies like the dollar or commodities like gold—think of them as digital dollars that can move instantly across borders without traditional banking delays.

Why this matters: The venture leverages the political connections and government contracting expertise of its backers in a newly deregulated environment.

• Luckey and Lonsdale are outspoken Trump supporters and successful government contractors through Anduril and Palantir.
• The bank could apply Anduril’s strategy of targeting “fringe” markets with “good enough” technological solutions before riding improvement waves.
• High-risk crypto, AI, and defense startups represent an underserved market similar to how border security was fringe for defense contractors.

Regulatory challenges: Despite the friendlier environment, Erebor faces potential hurdles from regulators and incumbent banks.

• The Bank Holding Company Act and Change of Bank Control Act aim to prevent commercial ventures from controlling banks.
• Erebor’s “monocrop” client profile could raise concerns, as lack of client diversity contributed to 2023 bank collapses.
• Traditional banking lobbies like the American Bankers Association may challenge crypto-focused charter applications.

What they’re saying: Industry experts see both opportunities and risks in Erebor’s approach.

• “At the end of the day, these companies need access to liquidity, and they can’t afford to have their cash not accessible,” said Stephen Marcus of Riot Ventures.
• Michele Alt, a regulatory consultant, noted: “The OCC is being very friendly to new applicants” under Trump’s administration.
• Evey Guo of FS Vector warned that Erebor’s “novel elements” may elicit “additional regulatory scrutiny and require particularly robust controls.”

The precedent: Previous crypto-focused banks like Signature Bank and Silvergate Bank failed around the same time as Silicon Valley Bank, highlighting the risks of serving volatile industries.

• Both banks had aimed to corner the crypto business-banking market with specialized services.
• SVB’s collapse in March 2023 resulted from economic volatility and risky liquidity practices leading to a bank run.
• First Citizens Bank purchased SVB’s assets and now operates it as a subsidiary.