Crypto bank Silvergate has acquired intellectual property and other technology assets related to running a blockchain-based payment network from the Diem Group.
The acquisition strengthens Silvergate leadership position in digital currency space
Silvergate Capital Corporation (NYSE: SI) is the leading provider of innovative financial infrastructure solutions and services for the growing digital currency industry. The Company’s real-time payments platform, known as the Silvergate Exchange Network, is at the heart of its customer-centric suite of payments, lending and funding solutions serving an expanding class of digital currency companies and investors globally.
Silvergate is uniquely positioned to leverage Diem’s technology to further solidify its position as a leader in the digital currency industry. The latest acquisition further enhances its existing stablecoin infrastructure and capabilities.
The assets acquired by Silvergate include development, deployment and operations infrastructure and tools for running a blockchain-based payment network designed to facilitate payments for commerce and cross-border remittances. The network, which has been operating in a pre-launch phase, was built by a world-class group of engineers over a two-year development cycle with architectural quality evidenced by its security, reliability and scalability. Included in the acquisition are proprietary software elements critical to running a regulatory-compliant stablecoin network.
Silvergate to launch U.S. dollar-backed stablecoin in 2022
The company said through its close partnership with Diem, Silvergate has gained deep familiarity with the network and developed strong appreciation for its potential to enable a Silvergate-issued stablecoin that will power the future of global payments. In fact, Silvergate was earlier working in close associateion with Facebook’s ambitious diem cryptocurrency project. Facebook reportedly abandoned the Diem stablecoin project due to regulatory presssure.
In November 2021, the U.S. Federal Reserve made it clear that Stablecoin issuers should be regulated banks if the tokens are to be used as a means of buying and selling things. The President’s Working Group on Financial Markets said they feared what might happen if a vast network of a tech company’s users suddenly began transacting in a new currency, and that combining a stablecoin issuer with a big corporation “could lead to an excessive concentration of economic power.”
Diem announced in May that Silvergate Bank to be the exclusive issuer of its Diem stablecoin. After a lengthy back-and-forth between the Diem advocates and regulators, Fed officials finally told Silvergate last summer that the agency was uneasy with the plan and couldn’t assure the bank that it would allow that activity, the people said.
Without a green light from the bank’s regulator, Silvergate was left unable to issue the new asset with confidence the Fed wouldn’t crack down, and so the Diem effort had no coin.
Alan Lane, Chief Executive Officer of Silvergate, commented:
“In the digital asset industry, money moves across the globe around the clock. Through conversations with our customers, we identified a need for a U.S. dollar-backed stablecoin that is regulated and highly scalable to further enable them to move money without barriers. As previously stated on our Q4 2021 earnings call, it remains our intention to satisfy that need by launching a stablecoin in 2022, enabled by the assets we acquired today and our existing technology.”
Silvergate Brings A Decade OF Experience In Digital Currency Industry
Silvergate Bank, a subsidiary of Silvergate, is a California chartered and Federal Reserve member bank with nearly a decade of experience building solutions for the digital currency industry. Its real-time payments platform, the Silvergate Exchange Network (SEN), enables its customers to move money between their accounts and the accounts of other Silvergate customers 24 hours a day, 7 days a week.
By integrating the Diems’ assets with the Silvergate Exchange Network, the crypto bank believes it is one step closer to launching a next-generation global payment system that is faster, easier to use and more cost-effective than existing solutions.
Mr. Lane, said:
“We are grateful to Diem and the community of engineers and developers who created this technology and have advanced it to its current evolution. Silvergate is committed to continuing to foster the open-source community that supports the technology, and we believe that existing contributors will be excited about our vision going forward.”
Stuart Levey, Chief Executive Officer of Diem, is also confident about Silvergate’s capabilities.
“I’m tremendously proud of the efforts of our members, partners and teams who have worked tirelessly to develop the Diem Payment Network with robust controls to protect consumers and combat financial crime. We have confidence in Silvergate’s ability to take Diem’s technology forward and transform the future of payments.”
The Silvergate Diem Deal
Under the terms of the asset purchase agreement, Silvergate has issued 1,221,217 shares of class A common stock to Diem and paid $50 million in cash. Based on the closing price of SI on January 31, 2022, the aggregate value of the consideration was $182 million. As part of integrating the acquired assets into Silvergate’s existing technology, Silvergate expects to incur approximately $30 million of additional costs in 2022.
Goldman Sachs & Co. LLC served as financial advisor to Silvergate and Holland & Knight served as Silvergate’s legal advisor. Architect Partners LLC served as financial advisor to Diem and O’Melveny & Myers LLP, Skadden, Arps, Slate, Meagher & Flom LLP, and Fenwick & West LLP served as Diem’s legal advisors.
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