A recent security breach at stablecoin-banking startup, Kontigo, has renewed concerns about how firms in the crypto and stablecoin space protect customer funds — and how these protections differ sharply from those offered by regulated traditional banks.
In early January 2026, Kontigo – a San-Francisco-based fintech that markets itself as a banking alternative for Latin American users – disclosed that hackers gained unauthorized access to customer wallets, resulting in the theft of approximately $340,905 worth of USDC stablecoins from more than 1,000 users. The company has since committed, and reportedly fully reimbursed all affected customers.
This incident comes just days after JP Morgan, the U.S banking giant, froze accounts for Kontigo and Blind Pay, another stablecoin startup, for doing business in Venezuela and other legally risky countries.
JPMorgan Freezes Accounts for Risky Stablecoin Payments
JPMorgan has reportedly frozen accounts linked to Y Combinator–backed #stablecoin startups BlindPay and Kontigo after flagging exposure to sanctioned jurisdictions.
The accounts belonged to @blindpaylabs and… pic.twitter.com/O6BCTQoFCr
— BitKE (@BitcoinKE) December 27, 2025
A Startup Response, Not a Regulatory Safeguard
While Kontigo’s decision to repay users helped avert immediate losses for individuals, the episode underscores a fundamental issue:
- Reimbursement was voluntary – Kontigo’s promise to cover losses was a business choice, not the result of a regulatory requirement or an external consumer-protection guarantee.
- Investors and founders made the decision to protect users, rather than an oversight body enforcing a safety net – leaving open the question of whether similar startups would act the same way under pressure.
In contrast, traditional banks in most jurisdictions must hold customer deposits under strict regulatory standards that include deposit insurance schemes such as the U.S. FDIC or similar protections elsewhere. If a bank fails or is hacked, insured depositors are guaranteed reimbursement up to statutory limits, backed by government-mandated insurance funds. Stablecoin platforms generally do not benefit from these safety nets, exposing users to greater direct risk. This is based on standard global banking protections.
REPORT | Stablecoins Now Account for 43% of All Sub-Saharan Africa Crypto Transactions, Says Quidax
Stablecoin Platforms and Emerging Markets: A Risk Trade-Off
Stablecoin banking startups like Kontigo often focus on regions with underbanked populations and volatile local currencies, where traditional financial infrastructure fails many consumers. Kontigo’s platform – offering remittances, savings, and payments in dollar-pegged tokens – appeals to users seeking alternatives to local instability and high financial costs.
However, this model has inherent vulnerabilities:
- Cybersecurity exposures: Crypto wallets and digital asset platforms remain prime targets for sophisticated cyberattacks. Without mandatory regulatory cybersecurity standards, users depend on individual firms’ internal measures, which vary widely in maturity and resilience.
- No formal deposit insurance: Unlike banks, most stablecoin firms don’t participate in government deposit insurance systems. If a startup’s liabilities exceed its capacity to reimburse – or if it becomes insolvent – users may have no formal recourse beyond their position as unsecured creditors.
- Regulatory gaps: Emerging markets often lack comprehensive frameworks governing stablecoin firms and digital asset custodians, leaving enforcement mechanisms weak or ambiguous. This can amplify risks of mismanagement, fraud, or operational failure.
EDITORIAL | Data Shows the Fintech Revolution Underway in Africa Makes the Need for Financial Literacy Education Necessary – and Urgent
Traditional Banks vs. Stablecoin Startups: Security of Customer Funds
| Feature | Traditional Banks | Stablecoin Startups |
|---|---|---|
| Deposit Protection | Backed by government insurance (e.g., FDIC, FSCS, etc.) | No mandated insurance; reimbursement is voluntary |
| Regulatory Oversight | Subject to strict capital, cybersecurity, compliance rules | Often lightly regulated or in regulatory grey zones |
| Custody Standards | Required internal controls and audits | Varies by firm; often unstandardized |
| Recourse for Users | Legal rights to insured funds and supervisory enforcement | Depends on company policies and solvency |
This comparison highlights why traditional banking systems are generally seen as safer custodians of public funds – they operate within well-established legal frameworks designed to protect consumers, including:
- Third-party insurance
- Capital adequacy rules, and
- Mandated audits.
Stablecoin companies, particularly those in high-growth emerging markets, often lack such protections. The Kontigo hack illustrates that without structural safeguards, customers rely only on a startup’s goodwill and financial capacity to absorb losses.
FTX Creditor Freezes 82% of Repayments Across 49 Jurisdictions Including Nigeria, Zimbabwe, Egypt
Broader Risks and Regulatory Imperatives
The Kontigo incident isn’t an isolated story; it reflects a broader trend in stablecoin platforms that tap into global remittances and digital banking demand. Across the ecosystem, vulnerabilities remain tied to:
See also
- Infrastructure security
- Regulatory ambiguity, and
- The absence of formal depositor protections.
As stablecoins gain traction, especially in regions with weak traditional banking penetration, the trade-off between accessibility and security becomes more visible. Policymakers and regulators are increasingly looking at frameworks that could impose minimum cybersecurity standards and reserve requirements or institute formalized consumer protections for digital asset holders – much as exists for banks.
Ultimately, the Kontigo hack demonstrates a clear lesson: greater financial inclusion through stablecoins must be paired with robust safeguards for customer funds, or users in emerging markets risk losing protections long taken for granted in the traditional banking system.
Yellow Card, Flutterwave, Onafriq: Why Africa’s Fintech Sector is Turning to Stablecoins
Stay tuned to BitKE for stablecoin and crypto updates across emerging markets.
Join our WhatsApp channel here.
Follow us on X for the latest posts and updates
___________________________________________
