{"id":172355,"date":"2023-03-14T03:57:06","date_gmt":"2023-03-14T03:57:06","guid":{"rendered":"https:\/\/precoinnews.com\/?p=172355"},"modified":"2023-03-14T03:57:06","modified_gmt":"2023-03-14T03:57:06","slug":"how-stablecoins-can-gain-from-silvergates-demise","status":"publish","type":"post","link":"https:\/\/precoinnews.com\/markets\/how-stablecoins-can-gain-from-silvergates-demise\/","title":{"rendered":"How Stablecoins Can Gain From Silvergate&#8217;s Demise"},"content":{"rendered":"<p>Silvergate Capital\u2019s crypto bank shutdown seems to be the latest domino to fall in the FTX fallout. Although its fall had a minor effect on the suppression of the crypto market than FTX, the lingering problem remains. From where to draw liquidity to supply fiat-to-crypto rail?<\/p>\n<h3>Silvergate\u2019s Demise Explained<\/h3>\n<p>Before Sam Bankman-Fried\u2019s FTX exchange collapsed, Silvergate held $11.9 billion in assets in September. In November, Silvergate\u2019s CEO, Alan Lane, assured investors that Silvergate (SI) had limited exposure to FTX, accounting for less than 10% of deposits, without any loans or other FTX investments.<\/p>\n<p>However, the bank issued SEN Leverage loans, exclusively collateralized by Bitcoin. As any bank would do, Silvergate used SEN Leverage to lend against customers\u2019 deposits in return for interest rate. By the end of 2022, Silvergate\u2019s SEN Leverage accounted for $1.1 billion in such commitments.<\/p>\n<p>However, the more significant risk came from the bank\u2019s accumulation of securities in bonds, treasury securities, and mortgage-backed securities. This coincided with the departure after FTX crashed, wherein Silvergate\u2019s deposits shrunk from nearly $12 billion to $3.9 billion in December.<\/p>\n<p>The coup de grace appears to be Silvergate\u2019s $4.3 billion loan from the Federal Home Loan Bank (FHLB) of San Francisco to facilitate these withdrawals. The problem was the FHLB\u2019s earlier-than-expected loan recall caused Silvergate to sell its securities prematurely.<\/p>\n<p>This resulted in a realized loss, totaling a net loss of $1.05 billion for Q4 \u201822. Fast forward to March 1st and Silvergate\u2019s delayed 10-K filing to the SEC. The bank pinpointed the repayment of the FHLB as the main culprit because of the \u201csale of additional investment securities beyond what was previously anticipated.\u201d<\/p>\n<p>In the following days, this triggered another bank run. Compounded, all the major Silvergate clients abandoned the SEN ship: Coinbase, Paxos, Circle, Binance.US, Gemini, and Galaxy Digital. Silvergate finally announced its liquidation this Wednesday, and SEN\u2019s USD payment rail is going down.<\/p>\n<h3>Crypto Liquidity in Shallow Waters<\/h3>\n<p>Two key mechanisms facilitate the growth of the crypto market:<\/p>\n<ul>\n<li>Sending fiat money directly to a centralized exchange to buy and sell crypto. Underneath it, the exchange needs a crypto bank like Silvergate to make the fiat flows happen.<\/li>\n<li>Converting fiat money into stablecoins and then sending them to an exchange to buy and sell crypto. If the stablecoin is centralized, its issuer needs a crypto-friendly bank to keep the stablecoin\u2019s reserves in a 1:1 ratio.<\/li>\n<\/ul>\n<p>Now that Silvergate is out of action with its SEN payment rail, the crypto market\u2019s liquidity will undergo significant restructuring. We are already seeing that US-based exchanges are suffering in contrast to international exchanges.<\/p>\n<p>Alongside the shallower market depth, the dominance of USD continues to shrink rapidly in favor of Tether\u2019s off-shore USDT stablecoin.<\/p>\n<p>This indicates a rise in stablecoin usage. Over the last week, USDT\u2019s market cap climbed by $3.4 billion, while USDC\u2019s share rose by $2.1 billion. Interestingly, USDC, jointly managed by Coinbase and Circle, suffered a brief -$0.77 billion shrinkage last week, likely due to the US authorities cracking down on Binance USD (BUSD) stablecoin.<\/p>\n<p>In contrast, the off-shore USDT\u2019s market cap has a consistent upward trajectory. Similarly, when Binance switched focus to TrueUSD (TUSD), the stablecoin\u2019s market cap increased by +37% over the last month, from $948 million to $1.3 billion.<\/p>\n<p>What appears to be happening is the return to crypto\u2019s early days. The US regulatory system\u2019s ramped-up activity is highly suggestive of Operation Chokepoint 2.0, with the original version deployed to debunk online casinos under the Obama admin.<\/p>\n<p>\u2013 Warren politicizes and pressures OCC\/FDIC\/FHLB to discriminate<br \/>\n\u2013 FHLB selectively recalls loan because Warren doesn&#8217;t like customers &#038; there&#8217;s an incomplete AML investigation, causing $4.3b sale of securities at a loss &#038; triggering bank run<\/p>\n<p>Financial journalists: this is fine pic.twitter.com\/DwxoFrmQZp<\/p>\n<p>\u2014 makesy\u00a0(@0xMakesy) March 9, 2023<\/p>\n<p>Regardless of the veracity of such speculations, this leads to a greater focus on international stablecoins instead of those reliant on US institutions.<\/p>\n<p>Inevitably, this will also supply the demand for algorithmic stablecoins. One example is Cardano\u2019s Djed stablecoin, pegged to the dollar but overcollateralized by the blockchain\u2019s ADA cryptocurrency.<\/p>\n<p>Ethereum is still largely dependent on USDC through its multi-collateralized proxy DAI, which is 25% backed by USDC. However, the US crypto ecosystem is likely to be dominated by USDC, already favored by BlackRock. This is the same $10 trillion asset manager the Federal Reserve hired in 2020 to structure its inflationary stimulus-response, which the central bank is now attempting to neutralize with interest rate hikes.<\/p>\n<p><i>This article originally appeared on The Tokenist<\/i><\/p>\n<p><b>Sponsored: Tips for Investing<\/b><\/p>\n<p>A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn&#8217;t have to be hard. SmartAsset&#8217;s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you&#8217;re ready to find an advisor who can help you achieve your financial goals, get started now.<\/p>\n<p>Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you&#8217;re an investor looking to minimize expenses,\tconsider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.<\/p>\n<p>Source: <a href=\"https:\/\/247wallst.com\/investing\/2023\/03\/13\/how-stablecoins-can-gain-from-silvergates-demise\/\" target=\"_blank\" rel=\"noopener\">Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Silvergate Capital\u2019s crypto bank shutdown seems to<\/p>\n","protected":false},"author":3,"featured_media":172354,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23054],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>How Stablecoins Can Gain From Silvergate&#8217;s Demise - Pre Coin News<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/precoinnews.com\/markets\/how-stablecoins-can-gain-from-silvergates-demise\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How Stablecoins Can Gain From Silvergate&#8217;s Demise - 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