Silvergate Capital, a crypto-focused bank, announced on Thursday that it would cut approximately 200 employees or 40% of its workforce and abandoned its plans to launch its own digital currency.
The bank has written off the $196 million it invested in acquiring the technology and assets of the Diem Association from Meta. The bank had previously partnered with them in 2021 to issue the stablecoin, with Silvergate managing the reserves and issuing the coin itself.
At that time, the bank’s CEO stated that the bank plans to launch a regulated, scalable stablecoin by the end of 2022 and will continue to support the open-source community responsible for its development. Lane expressed confidence that current contributors will share in the bank’s vision for the future.
However, the decision to cut staff and abandon its digital currency plans comes in the wake of a transformative shift in the digital asset industry in Q4 2022, which saw several high-profile bankruptcies due to significant over-leverage.
In response to these events and their impact on the company’s balance sheet, Silvergate is taking measures to strengthen its business, including reducing its expenses.
The headcount reduction will allow Silvergate to continue providing tailored customer experiences while carefully managing its expenses in a challenging economic climate. Affected employees were notified on January 4th, 2023, and will receive severance packages and job placement resources.
The bank estimates that the cost of the workforce reduction will be approximately $8 million, including $6.1 million in severance payments and $1.3 million in employee benefits. Most of these costs will be incurred in Q1 2023.
These costs are in addition to a $4 million restructuring charge incurred in Q4 2022 for severance and employee benefits related to the company’s exit from the mortgage warehouse lending product.
Crypto Bank To Sell Assets At a Steep Loss
US lawmakers have scrutinized Silvergate due to its ties to crypto exchange FTX and Alameda Research. In December, three senators sent a letter to the bank requesting information on its involvement in customer losses during the FTX exchange collapse.
The letter suggests that Silvergate’s role in transferring FTX customer funds to Alameda involved a failure to properly monitor and report suspicious activity.
According to a report by the Wall Street Journal today, Silvergate sold off debt on its balance sheet to handle around $8.1 billion in withdrawals, resulting in a loss of $718 million. This loss is said to be greater than the bank’s profits since 2013. In addition, deposits related to cryptocurrency at the bank decreased by 68% in the fourth quarter of last year.
Because of this, Silvergate dismissed 40% of its personnel. Despite this, the bank remains positive in its commitment to crypto and claims to have enough funds to handle a transformation phase. The bank highlighted that it’s taking decisive action to navigate the current market situation.
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