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, 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 (Mar 1), 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, Galaxy Digital and Paxos Trust announced that they will no longer accept or initiate payments through Silvergate, as did Gemini Trust, Crypto.com and Cboe Clear Digital. Meanwhile, Circle Internet Financial, the issuer of stablecoin USDC, said it’s “unwinding certain services” with Silvergate.

Shares of the La Jolla, California-based Silvergate fell as much as 55 per cent on Thursday. The stock fell 88 per cent 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 on 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, 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.

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.

Still, some firms are sticking with Silvergate’s services for now. TrueCoin, a stablecoin with US$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”. BLOOMBERG

Coinbase, Galaxy, Paxos stop accepting transfers via Silvergate network Businesstimes.com.sg. Available at: https://www.businesstimes.com.sg/companies-markets/coinbase-galaxy-paxos-stop-accepting-transfers-silvergate-network (Accessed: March 3, 2023).