California-based leading financial institution for innovators in fintech and the cryptocurrency industry, Silvergate Bank is seeking to become a more crypto-focused firm by offering cryptocurrency-backed loans.
According to an updated Initial Public Offering (IPO) filed with the United States Security Exchange Commission (SEC), the bank aims at offering fiat loans to institutional clients. It will be collateralized equally with cryptocurrencies, basically as a part of Silvergate Exchange Network (SEN).
SEN is a digital currency infrastructure solution designed for crypto exchange and investors. It was designed to enable the efficient movement of U.S. dollars between SEN participants anytime.
SEN’s participants include some of the U.S largest crypto exchanges and global investors, software developers, digital currency miners, custodians, and general industry participants that need its solutions and services.
“This solution provides greater capital efficiency for institutional investor clients that wish to transact without needing to move liquidity on and off different exchanges […],” reads the prospectus in the filing.
The whole effort is said to benefit both Silvergate and for the crypto industry. It will enable institutional clients from several crypto exchanges to use fiat currency without touching their crypto balances on the trading venues.
Silvergate will fund the loans through its balance sheet, with hopes that the risk of issuing such loans will be “appropriately compensated, … earning attractive risk-adjusted returns.”
“Offering lines of credit would also improve liquidity within the order book of our exchange clients, enabling additional trading on their platforms, potentially reducing pricing arbitrage across exchanges and improving the stability of digital currencies,” reads the prospectus.
If in case the crypto collateral’s price should go down, the bank will go to one of its exchange clients and sell the assets.
Additionally, Silvergate is also considering moves to include stablecoins in its payments infrastructure. Although Silvergate Bank is currently not associated with any stablecoin issuer directly, the document said it already holds U.S. dollar deposits backing “multiple stablecoins.”
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