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Silvergate’s Demise Opens Door For Signature And Kraken

In January, we wrote about premier crypto bank Silvergate’s many problems. The TLDR of that story was that Silvergate had gone from one of crypto’s greatest success stories to the precipice of disaster following the FTX collapse.

The numbers at the time were anything but pretty:

As a result, Silvergate cut nearly 40% of its staff, and watched its stock drop 44% in a month. To conclude, we said that the company looked to be “closer to the grave than the promise land”.

Oh, how right that statement turned out to be.

Since then, things have gotten much worse for the embattled bank, and it now looks like a collapse is a matter of when, not if.

Delays And Cuts
Things started to really hit the fan for Silvergate on March 1st.

That was when the bank was supposed to release its annual fiscal report. But, it never came. Instead, Silvergate filed for a 2-week extension, citing regulatory scrutiny and larger-than-expected losses. As a result of these investigations and losses, Silvergate’s ability to operate going forward was a “going concern”.

To sum it up, the extension was another way of Silvergate saying, “we might be screwed”.

And both the market and Silvergate’s partners took notice.

The stock dove 55% following the announcement. The selling spree was coupled with Coinbase, Paxos, Circle, and Galaxy Digital all cutting ties with the bank.

Bye Bye SEN
As if delaying its earnings report and losing all its major clients wasn’t bad enough, on Friday, Silvergate decided to shut down the Silvergate Exchange Network (SEN).

Most people have never heard of Silvergate's SEN, but it was crucial for the crypto ecosystem's “fiat problem”. When individuals go to buy bitcoin or other cryptoassets, at some point they have to interact with the traditional banking ecosystem. This is a problem you have probably never thought about, but trust us that it's a big deal. Behind the scenes there needs to be an “on ramp” to get your fiat onto an exchange.

Silvergate's SEN solved this problem by providing banking services to exchanges and other crypto companies. This allowed their clients to instantly move large amounts of money all seven days of the week.

As one of the only companies that provided this service, Silvergate had become a piece of core infrastructure for crypto. But without SEN, crypto companies simply won't stay with Silvergate. And, until a replacement service is found, liquidity might get a lot tighter, making it more difficult for institutions and clients to make trades.

One Door Closes, Another Opens
So, now that Silvergate is on the fast lane to the shadow realm, the question becomes, where do the major institutions go for their banking needs?

One popular answer is Signature Bank (SBNY), which is where LedgerX and Coinbase now call home. It’s an odd turn of events for Signature, which began the year attempting to pivot away from crypto. But, with its main competitor now underwater, digital coin services probably look awfully attractive again.

For the crypto industry, there are good reasons to be optimistic about Signature.

All of these factors lend hope that Signature can survive the crypto winter.

Another possible answer is Kraken’s new bank, which is scheduled to launch very soon. The advantage here would be that the bank would inherently be crypto-native. In theory, if anybody knows how to run a successful crypto bank, it would be people who have been in crypto for over a decade now.

Regardless of whether it’s Signature, Kraken, or someplace else, the crypto industry desperately needs a reliable banking option. Without it, liquidity will get worse, retail traders will suffer, and the narrative behind “institutional adoption” would lose a ton of momentum.

Needless to say, there’s a lot on the line here. Let’s hope a solution can be found soon.

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The Future Of Crypto Wallets Is (Maybe) Here

Since the day Satoshi published the bitcoin white paper, poor user experience (UX) has plagued crypto.

Although the days of buying bitcoin through shady sites are (thankfully) long-gone, it’s still difficult for people to get on exchanges, let alone on-chain. And, above all else, keeping crypto safe from loss is challenging for most people.

People in crypto always preach the value of self-custodying your crypto – and for good reason – it's the best way to fight against hackers and other people seeking to swipe your digital assets.

But, in order to self-custody your crypto, you have to move it into what is known as cold storage. In plain English, this means moving your coins to a flash-drive that is disconnected from the internet, hence cold. These flash-drives are then sealed with a seed phrase, which is a collection of 12 random words that can be used to recover the coins from the blockchain.

If you remember your seed phrase, you have full control over your money. It’s really a beautiful thing. But, if you forget it, your crypto goes poof 💨, and there’s no way to recover it.

Does anybody really believe that a billion people will trust their life savings to 12 random words on a piece of paper? Besides being extremely inconvenient in the modern world where banks are everywhere, it’s also quite unsafe. Just look at the people who have lost their fortunes because they forgot their seed phrase.

Thankfully, there is a new Ethereum update that finally aims to solve this problem.

The update is called ERC-4337, better known as Account Abstraction (AA).

The simplest way to understand AA is that it allows Ethereum wallets to operate the same way that smart contracts do.

The Way Wallets Work Today
Ethereum wallets today can be put into one of two buckets:

What AA does is merge the two wallets to create the optimal UX.

The Benefits Of AA
The nitty-gritty of how AA is implemented is extremely technical, so we won’t bother you with it. Instead, we’ll discuss a few examples of how AA changes the wallet game:

Looking Ahead
If you’re subscribed to CoinSnacks, we probably don’t have to convince you of crypto’s vast potential to improve the financial system.

But, crypto will never reach these lofty heights with its current UX.

AA is a great step forward by making wallets much easier and safer to use, paves the way for mass adoption, and for more people to become their own bank.

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7 Major Cryptos to Avoid & 3 to Consider…

When it comes to crypto …

Nilus Mattive – a 20-year Wall Street veteran – says these seven cryptos could go to zero…

But he also believes investors should consider taking advantage of three lesser-known cryptocurrencies, including one that was recently trading for less than $1. Click here to hear him explain why.

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