Photo illustration: Aïda Amer/Axios. Photo: Courtesy of Silvergate.
Silvergate Bank, the crypto bank of publicly traded Silvergate Capital, sees its future in stablecoin — but that future is laced with challenges.
Why it matters: Silvergate's third-quarter earnings report last week missed expectations, a slowdown in its core bank business that's a byproduct of the crypto winter. It will have to drive through that to realize its tokenized dollar future on the other side.
Driving the news: Silvergate last week delayed the launch of its stablecoin, saying it would not meet its goal of launching this year.
What they're saying: "It’s not a tech issue at this point keeping us from launching, but making sure we get it right with our regulators," Alan Lane, chief of Silvergate, tells Axios.
The big picture: To get there, Silvergate will have to overcome more than just regulatory issues — there are competitive obstacles as well.
The intrigue: "Because we aren’t a consumer bank, we don’t have a method of broad distribution, like a big national bank does," Lane says. "We need to solve for distribution."
Meanwhile, stablecoin legislation is geared toward existing players, leaving open the possibility of specific challenges for crypto banks, Lane said.
State of play: A crypto bank does what any other bank does — taking in deposits and lending those deposits out in loans — only it handles digital assets, too.
Be smart: "We also don’t lend out deposits the way a traditional bank would, we have a much lower loan balance," Lane says, drawing a line between Silvergate and say, JPMorgan — but also certain bankrupt crypto lenders.
As for the crypto winter, Lane says he had expected lower trading volume. But he also points out deposits saw a "modest drop" compared to figures in the last bear cycle.
What others are saying: "Shares of [Silvergate] fell sharply during today’s trading session after the company's [third-quarter] report showed lower-than-expected usage during the quarter of its Silvergate Exchange Network (SEN), " Mark Palmer, a stock analyst at BTIG, said in report last week.
What's next: "[Silvergate is] working behind the scenes — working on the operational muscle and the regulatory compliance muscle, so we can launch something," Lane says.
The bottom line: Maybe a dark horse will win the stablecoin race. Meanwhile, the majors are competing fiercely for greater market share.
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