Silvergate bank, a key bank that served many crypto companies including Binance and Coinbase, has announced that it will be shutting down operations and beginning a liquidation process to recover investor funds.
“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of bank operations and a voluntary liquidation of the bank is the best path forward,” the bank said in a statement.
Barring any unexpected events, the bank expects to fully repay customer deposits but has warned that ‘heightened regulatory scrutiny on banks that offer services to clients in the digital asset industry’ as one of the situations that could derail its plans.
Silvergate, along with Signature Bank based in New York, has been one of the two primary banks for crypto companies. While Signature Bank has over $114 billion in assets, Silvergate has just over $11 billion. A major customer of Silvergate was the now-bankrupt crypto exchange, FTX.
As a result of FTX’s collapse, investors withdrew $8 billion in deposits from Silvergate Bank during the last quarter of 2022 driving down deposits by 68% which has contributed to the bank’s ongoing struggle to remain financially viable. Besides the layoffs of 40% of its workforce in January 2023, the company also reported a net loss of almost $1 billion in its fourth financial quarter.
Silvergate Bank has been offering banking services to cryptocurrency companies since 2013. The bank also created its own proprietary settlement tool, known as the Silvergate Exchange Network (SEN) which is also being discontinued as per an earlier announcement on March 3.
Silvergate Exchange Network (SEN) is described as a proprietary payment platform developed by Silvergate to facilitate the movement of US dollars between cryptocurrency exchanges and their customers.
According to its November 2018 IPO filing, Silvergate Bank had almost 500 clients in the cryptocurrency industry which had grown to 750 by the time the initial public offering (IPO) was completed in 2019 and its shares began trading on the New York Stock Exchange.
The bank provided crypto companies, including exchanges, institutional investors, and other related businesses, with services such as custody, fiat on-ramps, and wire transfers.
Specifically exchanges and firms dealing in crypto trading relied on Silvergate for access to its network of banking partners, enabling these exchanges and firms to offer fiat deposits and withdrawals to customers.
Some of Silvergate’s prominent crypto institutional clients included:
- Coinbase – The leading cryptocurrency exchange in the United States
- Binance U.S – The US-based subsidiary of Binance
- Bitstamp – A popular European-based cryptocurrency exchange
- Gemini – A New York-based cryptocurrency exchange founded by the Winklevoss twins
- Anchorage – A cryptocurrency custodian and institutional brokerage service
- Paxos – A regulated financial institution that offers services for buying, selling, and holding cryptocurrencies
- BlockFi – A platform that offers crypto lending and borrowing services
Binance U.S. users were able to make USD deposits and withdrawals using the Silvergate Exchange Network (SEN) and also used the platform to facilitate USD transactions for its users.
However, some of the bank’s largest cryptocurrency industry clients, such as Coinbase, Paxos and Galaxy Digital decided to withdraw their deposits 7 days ago when the bank warned that it may go out of business, a CNN report said.
At the time, Silvergate also delayed its annual filing with the Securities and Exchange Commission amid an imminent regulatory crackdown, including a probe already underway by the United States Department of Justice.
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