Coinbase, Galaxy, Paxos stop accepting transfers via Silvergate Network
Less than four months after the collapse of the FTX exchange, crypto companies are again finding themselves assessing exposure to an embattled partner and cutting ties preemptively to avoid contagion.
This time, the counterparty is Silvergate Capital Corp., the bank behind a widely used payments network that facilitates the real-time transfer of money between crypto firms.
Silvergate suffered from a run on deposits already last year, triggered by the bankruptcy of its key client.
FTX. On Wednesday, the bank said it sold more debt holdings at a loss and was reviewing whether it can remain viable.
It also indicated it was being investigated by the US Justice Department.
That warning prompted swift reactions by crypto exchanges, stablecoin issuers and trading desks. Coinbase Global Inc., Galaxy Digital and Paxos Trust Co. announced that they will no longer accept or initiate payments through Silvergate, as did Gemini Trust Co., Crypto.com and Cboe Clear Digital LLC.
Circle Internet Financial Ltd., the issuer of stablecoin USDC, said it’s “unwinding certain services” with Silvergate. Cumberland, the crypto division of Chicago-based trading giant DRW, said that it had “minimal exposure” on Silvergate over the last few months.
Sinking Stock
Shares of the La Jolla, California-based Silvergate fell 58% Thursday.
The stock fell 88% last year as the prices of cryptocurrencies tumbled amid a series of industry.
scandals and bankruptcies, including FTX. Silvergate delayed the filing of its 10-K annual report Wednesday and said “it is working diligently to file its 10-K as soon as possible.”
The exodus threatens Silvergate’s SEN network, the bank’s key source of deposits and a platform for crypto participants to transfer money among each other.
Silvergate’s platform has become one of the critical infrastructure bridges in the industry, which has historically had difficulties getting bank accounts.
Bitstamp Ltd., which asked users to switch to Signature Bank instead, warned that it can’t ensure that any new funds transferred to Silvergate will be credited to their accounts and may potentially result in the loss of that money.
Coinbase, the largest US crypto exchange, said it made the decision “in light of recent developments and out of an abundance of caution,” and will be facilitating institutional client cash transactions with its other banking partners.
Risk Management’
Galaxy Digital, the crypto financial services firm founded by Michael Novogratz, said it continues to have no material exposure to Silvergate.
The company took the action “to ensure client and firm assets are secure as part of our vigorous risk-management process,” its spokesperson said in an email.
Cumberland, a major crypto trading desk, said that it has a “diversification of banking relationships” because of its risk management policies.
“We regularly evaluate our exposure to each entity and the associated risks. We followed that protocol with Silvergate here, and thus had minimal exposure over the last few months,” a Cumberland spokesperson wrote in an email.
Still, some firms are sticking with Silvergate’s services for now.
TrueCoin, a stablecoin with $1.16 billion market value, said it is “taking measures to ensure that escrowed funds are safe but we are not dropping Silvergate as a partner at this moment.
By:ET
insidesmarket.com
