Synapse

Synapse's collapse was triggered by a breakdown of its core intermediation model. A dispute with its primary banking partner, Evolve Bank & Trust, over reconciling Synapse's internal ledger against actual account balances held at the bank led to a freeze on end-user funds. The shortfall, estimated between $65 million and $95 million, stemmed from a mismatch between what fintech applications showed consumers and the cash physically held at partner banks, rendering the business insolvent.

Under Synapse's standard structure, partner banks like Evolve Bank & Trust held the actual FDIC-insured deposits, while Synapse maintained the operational ledger that tracked who owned what. However, when Synapse went bankrupt, the ledger was contested and the banks did not assume responsibility for the shortfall. End users were left in a regulatory gap where neither the failed intermediary nor the solvent bank accepted liability for the full balance.

Consumer-facing applications that relied on Synapse's middleware were left unable to process transactions or return deposits. Affected firms included Juno (previously OnJuno), a digital banking platform targeting the crypto-native and freelance communities, and Yotta, a savings app that used a sweepstakes model. In total, an estimated 10 million end-user accounts were locked during the bankruptcy process.

FDIC insurance protects depositors when an FDIC-insured bank fails, but Synapse itself was a technology company, not a chartered bank. The solvent partner banks argued that their records did not match Synapse's disputed ledger, making it unclear who the actual depositors were and for what amounts. The FDIC explicitly stated its insurance does not cover losses from the failure of a non-bank technology service provider, leaving consumers without a clear path to reimbursement.

The Board of Directors removed Sankaet Pathak from his position as CEO in early 2024 amid a liquidity crisis and internal disputes. Pathak publicly challenged the legality of his termination and threatened a proxy contest. The management upheaval delayed potential rescue financing or a sale of the company, accelerating the path to Chapter 11.