Crypto Gloss

Silvergate Bank

Silvergate Bank was a La Jolla, California-based commercial bank founded in 1988 that pivoted to serving the cryptocurrency industry starting around 2014, becoming the central banking partner for virtually every major U.S. crypto exchange, OTC desk, stablecoin issuer, and institutional trading firm. Its flagship product was the Silvergate Exchange Network (SEN) — a proprietary real-time, 24/7 USD transfer network that allowed crypto industry participants to move dollars instantly between accounts, outside normal banking hours. Silvergate voluntarily announced liquidation on March 8, 2023, triggered by losses from FTX exposure and a bank run by institutional crypto depositors following FTX’s November 2022 collapse.

Background

Silvergate was a small La Jolla community bank until CEO Alan Lane identified the unmet banking need of crypto companies in the 2013–2014 era, when virtually no traditional banks would open accounts for crypto businesses. Silvergate took on crypto clients systemically and built SEN specifically to address the 24/7 nature of crypto markets — where USD needed to move on weekends and overnight to settle trades and margin calls.

Silvergate Exchange Network (SEN)

SEN was the nervous system of U.S. institutional crypto:

  • 24/7/365 real-time USD transfers between SEN member accounts
  • Used by Coinbase, Gemini, Kraken, Binance.US, FTX, stablecoin issuers, and market makers
  • Eliminated the need to wait for Fed wire hours or rely on slow ACH for large USD movement
  • At peak, SEN processed $1 trillion+ in transactions annually

FTX Exposure and Collapse

FTX was a major Silvergate depositor and SEN user. After FTX’s November 2022 collapse:

  1. Regulators, lawmakers, and journalists scrutinized Silvergate’s relationship with FTX
  2. Silvergate disclosed it had $1 billion in FTX-related deposits that had already been withdrawn before FTX’s failure
  3. Institutional depositors — spooked by Congressional letters and ongoing investigations — began withdrawing funds
  4. Silvergate sold $5.2B in assets at a loss to cover withdrawals
  5. Silvergate announced voluntary liquidation March 8, 2023 — two days before Signature Bank’s seizure

Impact

Silvergate’s closure removed the primary 24/7 USD settlement rail for U.S. crypto institutions simultaneously with Signature Bank’s closure. This created a temporary dollar liquidity crisis for exchanges and market makers who lacked 24/7 USD access through any other bank for weeks.

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