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Silvergate Bank reveals plans to offer crypto-backed loans this year

Mon, 19 Aug 2019, 11:48 am UTC

Crypto-friendly U.S. bank Silvergate has revealed its intention to offer cryptocurrency- collateralized loans in its updated IPO filing with the United States Securities and Exchange Commission (SEC), Cointelegraph reported.

Silvergate, which began its cryptocurrency-related business in 2013, said that it has seen “significant demand” from its existing and prospective customers for borrowing for the purposes of buying digital currency.

The bank noted that such credit products, although ubiquitous and financially attractive in many established markets, are almost non-existent in the crypto space.

Silvergate now aims to bridge this gap with cryptocurrency-collateralized loans. The service would involve the borrower providing digital currency or U.S. dollars as collateral in an amount which is significantly greater than the line of credit.

“The Bank would initially 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 document reads.

Silvergate said that it would work with one or more of its exchange clients to implement this solution. The bank expects to offer this credit product to select institutional clients in the latter part of 2019.

“This solution provides greater capital efficiency for institutional investor clients that wish to transact without needing to move liquidity on and off different exchanges,” it added.

“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.”

Furthermore, the bank said that it has also identified significant demand for it to be involved in the custody and transfer of digital assets between customers. As such, it is considering establishing a qualified custodian entity as a company subsidiary.

“This entity would seek to become a New York State licensed limited liability trust company through which digital currency activities would be conducted. The State of New York was strategically chosen due to its established track record of granting trust charters for digital currency related companies. An application for this new entity has been submitted and is under review,” Silvergate added.

The bank has been witnessing remarkable growth of its client base, which grew from 542 “established and emerging digital currency industry customers” in December 2018 to 655 as of June 30 – marking a 20 percent rise over six months and 55 percent over the year, CoinDesk reported. Silvergate is also in the process of onboarding another 228 clients.

Speaking of its income, the bank said that net income for the six months ended June 30, 2019, was $14.6 million, marking an 81.6 percent growth from net income of $8 million for the six months ended June 30, 2018.

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