The crypto bank Silvergate Capital (NYSE:SI) and Facebook (NASDAQ:FB) have announced a partnership that will see Silvergate become the exclusive issuer of the Diem U.S. dollar stablecoin, formerly know as Facebook's Libra project.

Stablecoins are cryptocurrencies tied to other assets such as Gold or the U.S. dollar in order to provide more stability to the digital currency, but still reap the advantages digital currencies can offer when it comes to payments solutions.

Not only will Silvergate become the exclusive issuer of the Diem, but it will also manage the Diem reserve.

"We believe in the future of U.S. dollar backed stablecoins and their potential to transform existing payment systems," Silvergate Capital's CEO Alan Lane said in a statement. "We're inspired by Diem's technology and commitment to building a regulatory compliant payment system that offers a safe and secure way to move money. We're excited to be at a place in the process where we can announce this product with confidence and look forward to continuing our work with Diem to bring this to market."

Graphic of digitized bank

Image source: Getty Images.

The Diem Association is a member-based association with merchants, payment service providers, social impact partners, and other entities. Its goal is to offer a more efficient and lower-cost payments solution that is more secure, and can protect consumers and fight financial crime.

Silvergate is a small $7 billion asset bank that specializes in banking crypto exchanges and institutional trades of cryptocurrencies that interact with one another.

Its Silvergate Exchange Network (SEN) is a real-time payments network that can clear transactions in U.S. dollars instantly around the clock, 365 days a year, between two users in the network. It's ideal for crypto traders and exchanges because cryptocurrencies trade around the clock.

On Silvergate's recent earnings call, management said SEN already provides each of the four regulated U.S. stablecoin issuers with critical infrastructure to operate. The bank also said stablecoins present a significant fee income opportunity.

Shares of Silvergate were up more than 18% in after-hours trading as of 6:10 p.m EDT.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.