Silvergate Bank, the financial service provider of choice in the crypto industry, is aiming at introducing cryptocurrency loans.
A recent IPO filing shows that Silvergate has experienced a rise in demand from this industry and aims at becoming an institution more focused on crypto than anything else. The bank maintains relationships with the top companies in the crypto world like Coinbase, Genesis Trading, Bitstamp, Polychain Capital, Xapo, and Blocktower Capital.
The bank is planning on offering fiat loans, with crypto collateral, to various institutional clients. This new offering will be the part of the Silvergate Exchange Network, a payment system designed specifically for cryptocurrency exchanges as well as their major clients.
Giving these major clients of crypto exchanges access to fiat without touching their cryptocurrency balances won’t just help Silvergate, but also the entire industry. According to the prospectus:
“This solution provides greater capital efficiency for institutional investor clients that wish to transact without needing to move liquidity on and off different exchanges. … Offering lines of credit would also improve liquidity within the order book of our exchange clients, enabling additional trading on their platforms, potentially reducing pricing arbitrage across exchanges and improving the stability of digital currencies.”
Silvergate will fund this type of loans on their own, and in case of decline in the price of crypto collateral against that loan, the bank will have the ability to approach the exchange clients to sell the collateral. According to the company, the risk with this type of loan will be “appropriately compensated … earning attractive risk adjusted returns.”
Silvergate also plans on including stablecoins into its payments system. However, currently they aren’t involved directly with stablecoin issuers. But, according to the document, the bank does hold USD deposits that back “multiple stablecoins.”
Silvergate has also seen a significant growth in its clientele during 2019. By June 30th, they had 655 “established and emerging digital currency industry customers,” in comparison to 542 that they reportedly had in December of last year which shows a 20% increase during these six months and an even bigger 55% increase in the last year.
There are 228 more clients that are about to get onboard with them. Individuals as well as companies that support and are building cryptocurrency infrastructure, like software developers, custodians, miners, and “general industry participants” make up 27.2% of the crypto customers of Silvergate, according to the filing.
It’s not just the crypto clients that are growing in number but the income of the bank as well. There has been a whopping 81.6% increase in their net income since June last year, reaching $14.6 million growing up from $8 million last year, the firm points out. The transfers through SEN have also increased to $12.7 billion worth, in comparison to $8.3 billion throughout 2018. The figure significantly exceeds in value from transfers for the bank’s non-crypto customers that stand at $11.2 billion in 2019.
Earlier, Silvergate stated that they planned on acquiring a BitLicense for New York state for launching a limited liability trust company and assuming the role of an institutional cryptocurrency custodian. In an earlier filing, it said:
“Our growth strategy contemplates the establishment of a qualified custodian entity as a Company subsidiary to address this market opportunity.”