Posted 03-13-2023 at 16:17:23 [URL] [DELETE]
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And then there were three
The collapse of crypto banks Signature and Silvergate could mean a liquidity crisis for stablecoins
Crypto may be a 24/7, 365 ecosystem, but traditional banking is not. For years, disruptors relied on two digital payment networks—Silvergate Bank’s Silvergate Exchange Network (SEN) and Signature Bank’s Signet—as on-ramps from U.S. dollars into cryptocurrencies.
The groundbreaking platforms allowed crypto companies to work with fiat currency outside of traditional business hours, rather than having to rely on restricted services like the Federal Reserve’s Fedwire or ACH transfers, and were key to the business structures of top firms such as Circle, the issuer of the stablecoin USDC.
The developing banking crisis and collapse of both Silvergate and Signature have thrown the payment rails into flux. Silvergate shuttered SEN on March 3, before announcing its voluntary liquidation on March 8, and New York regulators took over Signature on Sunday citing “systemic risk,” effectively ending the Signet platform.
According to financial experts and industry participants, the closure of the two payment providers will create immediate liquidity problems for the crypto ecosystem—especially stablecoins, which will no longer have 24-hour on- and off-ramps into or out of U.S. dollars.
“Signet and SEN were essential,” said Nic Carter, a general partner at the crypto-focused Castle Island Ventures. “Now we can expect more stablecoin depegs [and] more choppiness and volatility on exchanges on the weekends.”