A recent filing with the US Securities and Exchange Commission shows that Silvergate Bank has 542 clients operating in the cryptosphere. As of December 31, 2018, the figure marks a 122% increase in clients, up from 244 in 2017, with an increase of 59 clients in the fourth quarter.
Silvergate’s crypto-focused strategy has attracted global investors, exchanges, miners, software developers and custodians. It services the leading US crypto exchange, Coinbase, as well as high-profile crypto exchanges and blockchain-related companies such as Gemini, bitFlyer, Kraken, Bitstamp, Bittrex, Paxos and Circle.
Pivotal to the company’s growth strategy is the expansion of the Silvergate Exchange Network (SEN), a proprietary network designed to operate 24/7, increasing speed and liquidity, reducing banking friction and minimizing counterparty risks for the bank’s clients.
According to Silvergate’s updated IPO prospectus,
“The Silvergate Exchange Network executes in real time what legacy solutions do in several hours to several days.”
“The SEN was developed and tested in 2017 with a limited number of Bank customers. The SEN was made available to all of the Bank’s digital currency related customers in early 2018. The core function of the SEN, enabled through the Bank’s business online banking data processing system, is to allow SEN participants to make transfers of U.S. dollars from their SEN account at the Bank to any other account they have at the Bank or to the Bank account of another SEN participant with which a counterparty relationship has been established, and to view funds transfers received from their SEN counterparties. Counterparty relationships between parties effecting digital currency transactions are established on the SEN to facilitate U.S. dollar transfers associated with those transactions.”
“SEN transfers occur on a virtually instant basis as compared to electronic funds transfers being sent outside of the Bank, such as wire transfers and ACH transactions, which can take from several hours to several days to complete. Our proprietary, cloud-based application programming interface, or API, combined with our online banking tools, allows customers to efficiently control their fiat currency, transact through the SEN and automate their interactions with our technology platform. Customers value this around-the-clock access to U.S. dollar transactions and further benefit from the SEN’s powerful network effects—as more users join the SEN, its importance to digital currency exchanges and investors increases dramatically. These compelling technology tools have enabled us to attract many of the digital currency industry’s largest market participants as customers.”
The San Diego-based bank has rapidly grown its client base.
“We have developed a diverse set of 542 established and emerging digital currency industry customers as of December 31, 2018. Our customer base has grown rapidly, as many customers proactively approach us due to our reputation as the leading provider of innovative financial infrastructure solutions and services to participants in the digital currency industry, which includes our unique technology solutions.”
While deposits from cryptocurrency customers were up 11.4% to $150.4 million for the year ended December 31, 2018, the fourth quarter showed a decline in deposits from $792.9 million to $618.5 million. Despite the market downturn, the bank says it expects customers to continue growing, generating additional deposit potential.
As of December 31, 2018, deposits from digital currency investors totaled $577.5 million versus $266.1 million from other startups.
“As of December 31, 2018, the Bank’s 10 largest depositors accounted for $843.6 million in deposits, or approximately 47.3% of the Bank’s total deposits, nine of whom are customers operating in the digital currency industry.”
The bank highlights stablecoins as a key growth opportunity.
“We are already benefiting from our clients’ interest in stablecoins by holding fiat currency for our customers that may ultimately be exchanged for stablecoins. Fiat currency held for customers that may be used for exchanging into stablecoins is not treated any differently than other fiat currency held by the Bank’s depositors. We hold these funds on deposit similar to other investor funds held on an exchange.
Secondly, in many cases, investors are moving fiat currency onto exchanges in order to buy stablecoins using the SEN, increasing the utility of the network and ultimately expanding the opportunity to earn fees commensurate with the value of our service. Finally, we believe the largest opportunity is to hold fiat currency in a deposit account as collateral for stablecoins and we are working closely with several leading stablecoin developers to hold their deposit collateral. In the aggregate, we believe these three opportunities represent substantial growth opportunities that could dramatically enhance our deposits and profitability.”