U.S.-based Silvergate Bank has launched a bitcoin collateralized loan product with Bitstamp as its launch partner. The crypto exchange will act as the bank’s agent to manage and provide custody for bitcoin collateral. The product utilizes Silvergate Bank’s Exchange Network to fund loans and process repayments in real time.
Silvergate Bank’s New Product
Silvergate Bank announced on Wednesday that it has launched a new product called SEN Leverage, which uses the Silvergate Exchange Network (SEN) to fund loans and process repayments in real time. Bitstamp, one of the oldest bitcoin exchanges, is the bank’s launch partner. The bank detailed:
SEN Leverage … will allow Silvergate Bank (‘Bank’) customers to obtain U.S. dollar (‘USD’) loans collateralized by bitcoin held at select digital currency exchanges that are also customers of the bank.
Initially, the product will be available to the bank’s institutional clients, with Bitstsamp acting as its agent to manage and provide custody for bitcoin collateral, the announcement describes.
“Our digital currency customers have asked us to help them create greater capital efficiency,” Silvergate CEO Alan Lane commented, adding that both companies worked on the project for the past six months.
In its filing with the U.S. Securities and Exchange Commission (SEC), Silvergate Bank explained that the borrowers would provide digital currency as collateral “in an amount significantly greater than the line of credit being advanced.” At no time will the bank directly hold the pledged cryptocurrency, and the offer is limited to bitcoin initially.
Silvergate Bank plans to work with existing digital currency exchange clients to act as its collateral custodian for the loans “and to liquidate the collateral in the event of a decline in collateral coverage below levels required in the borrower’s loan agreement,” the bank informed the SEC.
The SEN, the bank’s proprietary payment network, was established in 2017. In the third quarter of 2019, it facilitated over $10 billion in USD transactions, the bank claims. Digital currency and institutional clients can send USD between their Silvergate accounts and the accounts of other Silvergate clients via the bank’s API or online banking portal, enabling real-time transfers and immediate availability of funds. While there are no SEN-specific fees, clients need to have bank accounts with the bank to access the product.
Miha Grcar, Head of Business Development at Bitstamp, explained:
One of the key features of SEN Leverage is Silvergate’s real-time 24/7/365 ability to both fund loans and accept repayments over the SEN, thus enabling Silvergate’s customers to more flexibly manage their bitcoin positions.
Bitstamp explained on Wednesday that it already uses the SEN to provide 24/7/365 account funding to eligible customers. “We are excited to be working with Silvergate Bank to offer a product that will enable our clients to manage their bitcoin positions with more flexibility,” such as with leverage trading collateralized by bitcoin, the exchange noted.
Silvergate’s Digital Currency Business
Opened in 1988, Silvergate is a commercial bank headquartered in San Diego, California. As of Sept. 30, 2019, it had total assets of $2.1 billion, total deposits of $1.8 billion, and total stockholders’ equity of $230.6 million.
The bank began pursuing digital currency customers in 2013 and has been focusing on serving the crypto community ever since. According to its website, the bank currently has over 700 digital currency and fintech customers using its platform daily to grow and scale their businesses.
Silvergate Bank completed its initial public offering (IPO) on Nov. 12, 2019. Its common stock began trading on the New York Stock Exchange on Nov. 7, one day after the SEC declared its registration statement relating to the IPO effective. According to the SEC filing, the bank’s clients include Coinbase, Genesis, Bitstamp, Gemini, Sofi, Circle, Kraken, Bittrex, and Paxos.
What do you think of Silvergate Bank launching a bitcoin loan product with Bitstamp as its launch partner? Let us know in the comments section below.
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Images courtesy of Shutterstock and Silvergate Bank.
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