All Crypto Partners Abandon Ship, What's Left for Crypto-Friendly Bank Silvergate?

Following the lead of the US exchange Coinbase, which announced an immediate halt to sending and receiving funds to and from Silvergate, stablecoin issuers Circle, Paxos, and Tether also publicly stated that they have to some extent severed ties with the bank. According to a report by The Block, market makers and OTC trading firms GSR, Wintermute, and Blockchain.com have already abandoned its Silvergate Exchange Network (SEN). With former key crypto partners all leaving, what is left for Silvergate, the crypto-friendly bank?

Prior context: Silvergate unable to file annual report on time, facing "capital deficiency" dilemma?

Circle Emphasizes Diversified Decentralization

According to Circle's latest reserve report, its cash is held in Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank (a division of Flagstar Bank, N.A.), Signature Bank, Silicon Valley Bank, and Silvergate Bank. Circle has also announced that it will stop certain services with Silvergate, but due to its partnerships with multiple banks, Circle's operations will not be affected.

1/ We maintain relationships with several banking partners. We are sensitive to the concerns around Silvergate and are in the process of unwinding certain services with them and notifying customers. Otherwise, all Circle services, including USDC are operating as normal.

— Circle (@circle) March 2, 2023

Tether Claims No Exposure to Silvergate

Tether has also come forward - we have no exposure to Silvergate. Indeed, in its audit report, there is no mention of any bank's name, although it holds $5.3 billion in cash and bank deposits.

#Tether does not have any exposure to Silvergate.

— Paolo Ardoino 🍐 (@paoloardoino) March 2, 2023

Paxos Halts the Use of SEN Network

In light of recent developments with Silvergate Bank, Paxos has discontinued all SEN transfers and wires to our Silvergate account. Paxos will continue to process all outgoing payments.

— Paxos (@PaxosGlobal) March 2, 2023

As per our previous reports, as of 2/10, Paxos holds $830 million in fiat currency deposits held by custodial institutions. Paxos' deposit institutions include BMO Harris Bank N.A., Signature Bank, Silvergate Bank, State Street Bank and Trust Company, and Customers Bank. While the report does not specify the amounts, it appears that Paxos intends to gradually move the deposits out and no longer use Silvergate's services.

All Crypto Partners Flee, What's Left for Silvergate?

From the previous Silvergate financial report customer analysis, it can be seen that crypto partners have always been its lifeline, even though they made up 75% of total deposits after the mass exodus in the fourth quarter of last year.

Silvergate's SEN network allows customers to send USD and EUR 24/7, unrestricted by bank hours, and has been Silvergate's cash cow, generating $5 billion in revenue last year. If it is no longer used by crypto businesses, Silvergate's revenue source is indeed a cause for concern!

In its report submitted to the SEC on March 1, Silvergate stated that the company is evaluating the impact of subsequent events on its ability to continue operating for the twelve months following the release of its financial statements. The company is currently reassessing its business and strategy based on the current business and regulatory challenges it faces. Can this event be remedied by raising capital? Or will Silvergate decline and become the first bank to be brought down by the crypto industry?