Business

Erik Gibbs

Silvergate wants to get into the crypto loan business

Silvergate Capital Corporation believes the time is right to get into the cryptocurrency loan business. The financial company, which operates the Silvergate Bank for the crypto industry, already has a long list of crypto clients at its disposal and is now going to begin to offer loans that can be collateralized by digital currency holdings. The move is the latest indication of the overall acceptance of crypto as a reliable ecosystem that is ready for mainstream adoption.

Silvergate filed with the US Securities and Exchange Commission (SEC) to introduce its new loan platform, stating, “We believe there may be attractive opportunities to provide digital currency borrowing facilities to deepen our high quality customer relationships and further enhance our interest income.”

The company adds, “Instrumental to our leadership position and growth strategy is the Silvergate Exchange Network, or SEN, our proprietary, virtually instantaneous payment network for participants in the digital currency industry which serves as a platform for the development of additional products and services. The SEN has a powerful network effect that makes it more valuable as participants and utilization increase, leading to 374% growth in SEN transaction volumes in the first six months of 2019 compared to the first six months of 2018. The SEN has enabled us to focus on significantly growing our noninterest bearing deposit product for digital currency industry participants, which has provided the majority of our funding over the last two years.”

To launch the platform, which reportedly has already received a lot of positive interest, clients can take out loans backed by either US dollars or crypto assets. Silvergate then will “set a conservative aggregate lending amount to refine the product, and will develop a risk framework to minimize risk and further develop lending models over time.”

The launch is apparently a step toward further integration and a possible complete transition to digital currencies. The company states in the filing, “We intend to continue focusing on our digital currency initiative as the core of our future strategy and direction. Our leadership position in the digital currency industry as a result of the SEN has enabled us to establish a significant balance of noninterest bearing deposits from our growing digital currency customer base. Over the last six years, we have transitioned from a traditional asset based bank model focused on loan generation to a deposit and solutions based model focused on increasing noninterest bearing deposits and noninterest income.”

Provided the SEC, or some other government body, doesn’t intervene, the loan platform will be made available before the end of this year.

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