The ongoing collapse of $781 million Swiss bank FlowBank is rippling across the crypto industry and threatens the existence of a stablecoin.

That’s because, Anchored Coins AG, the Swiss company that issues the euro-pegged stablecoin AEUR, deposited part of the reserve backing for its $63 million euro stablecoin in the troubled bank.

Anchored Coins did not immediately respond to a request for comment.

The company paused the issuance and withdrawal of its token until further notice, according to a statement on its website. The company has also stopped accepting new customers.

“As the bankruptcy proceedings concerning FlowBank SA in liquidation are still in an early phase, it is not yet clear to which extent this part of our collateral can be recovered,” Anchored Coins said. “Hence, a risk remains that in case of a shortfall, the 1:1 redeemability cannot be upheld which would lead to a respective loss for the holders of AEUR tokens.”

The company also said, “as required by Swiss law, such loss would be applied proportionally to all AEUR token holders.”

Paying back AEUR users

Those deposits act as a fallback redemption guarantee for its stablecoin holders in case Anchored Coins itself defaults on its obligation to redeem users’ tokens for fiat.

With FlowBank in liquidation, those funds are in limbo until Swiss authorities appoint a liquidator to oversee the return of deposits to creditors ― a process that could take time.

Anchored AG is not guaranteed to recover all of its deposits in the affected bank which may mean stablecoin holders take a haircut on their holdings.

FlowBank’s bankruptcy isn’t the only crisis the stablecoin issuer has suffered in recent times.

Binance paused AEUR trading in December, four days after its initial listing on the exchange because the token soared 200% to $3.25 ― an unusual occurrence for a stablecoin. The crypto exchange attributed the token’s upward depeg to factors including “users who might not have realised its standing as a stablecoin.”

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.