What happened
Shares of the crypto bank Silvergate Capital (SI) traded 16.5% higher as of 11:05 a.m. EDT today after the company announced a new partnership with Facebook's (META -4.13%) yesterday.
So what
Silvergate announced that it will become the exclusive issuer of Facebook's Diem U.S. dollar-pegged stablecoin, formerly known as Facebook's Libra project. Silvergate will also manage the reserve dollars for the Diem.
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.
Image source: Getty Images.
The goal of the Diem Association is to offer a more efficient and cheaper payments solution that is more secure, can protect consumers, fight financial crime. Initially, the goal of Libra was to create a universal digital currency backed by many currencies that could help people around the world without bank accounts. But after a lot of pushback, the project is now focusing on stablecoins mostly backed by one currency.
Now what
The reason the small $7 billion asset Silvergate secured this partnership with Facebook is because it has developed a novel real-time payments system called the Silvergate Exchange Network (SEN) that enables stablecoin issuers to mint and burn stablecoins 24/7. SEN already provides each of the four regulated U.S. stablecoin issuers with this critical infrastructure.
Being an issuer of stablecoins is going to lead to a lot of transaction volume over SEN, which creates a significant fee income opportunity for the company. I believe SEN is a game changer in terms of crypto banking, custody, and lending solutions, and recently purchased shares myself.
