Alan Lane on Real Vision crypto interview:
Transcript -
Ceo of SI : SILVERGATE: THE BANKING SOLUTION OF THE FUTURE
ALAN LANE: We go out to our customers and we say, how can we be helpful? Then we actually try to be helpful. Traditional banking is built on legacy systems that still only operate 40 hours a week during normal business hours, which is really inconvenient when you think about the way we live the rest of our lives. Going to the bank is an errand of the past. Today, we manage our money on our phones, we pay for things with our watches, cheques are a thing of the past, cash is increasingly going away. The next step is for money to truly become digital. Digital money is Bitcoin. Bitcoin and other cryptocurrencies have exploded on the scene, but fiat currencies are not going away. If you want to transact between the traditional fiat world and the Bitcoin world, we need a financial system that operates 24/7. In order to do that, the FinTech companies that are bringing the financial apps to the world, they need financial infrastructure, and that's where Silvergate comes in. Back in in 2013, we saw that there were companies that were being formed to provide banking services to the Bitcoin community. Bitcoin was brand new. This is before a lot of the other cryptocurrencies even came on the scene. They were reputable companies wanting to do the right thing. They wanted to follow regulation, but they were getting kicked out of banks, and they were raising venture money from reputable VC firms, but they were struggling to find and maintain bank accounts. We looked at that, and we thought, well, that's not right. These companies aren't doing anything illegal. They're not doing anything immoral, we ought to be able to help them. Early on, there were two things. One, we were willing to talk to them, and two, we were willing to open up a bank account. The early account offering was really just a deposit. As we learned more about our customers' needs and their pain points. We just felt like they needed more than just a depository. At Silvergate, for the last 30 plus years, we've been all about solving problems for our customers. We really looked at going back out to our customers and saying, how can we be more helpful, and really settled on three things. The first thing was decreasing the banking friction. There was a lot of friction in getting US dollars into and out of cryptocurrencies. The next problem was counterparty risk. Bitcoin is a bearer asset, whoever holds the keys owns the Bitcoin. If you're transacting with somebody else, you want to really be confident that you know who that counterparty is. The third thing is maximizing capital efficiency. There is no credit market in in Bitcoin. If you want to buy bitcoin, you actually have to have dollars or a fiat currency on an exchange platform when you want to transact. That 30-year commitment to solving problems for our customers, as it relates to Bitcoin now, has positioned Silvergate as the leading provider of innovative financial infrastructure services. As a result of that, we are banking some of the largest FinTech and digital currency companies and investors around the world. In addition to Bitcoin, stablecoins are showing a lot of promise. They've really come on the scene in a big way this year, and some people call them crypto dollars. Stablecoins are really a tokenized, or digital representation of fiat currencies like the US dollar. The important thing about stablecoins is that unlike December 14th , 2020 - www.realvision.com 3 The Expert View - Crypto: Silvergate: The Banking Solution of the Future Bitcoin, which does have volatility in its price, stablecoins are pegged one to one for a fiat currency. Therefore, they can be used, and you can transact with them the same way that you would transact with a debit card. They can really be used in cross border payment, where you need something that has a stable value. Our primary customers in the digital currency space are digital currency exchanges. Bitstamp, Coinbase, Gemini, Kraken. We also bank institutional investors. We are connecting exchanges to institutional investors. You can think of those as proprietary traders, family offices, hedge funds, professional money managers. Third category would be stablecoin issuers. As more dollars are being converted in stablecoins, stablecoin issuers and users need access to the tools and technology to move money into and out of the ecosystem, and that's what Silvergate does. We're very proud that we are the transactional bank for all of the regulated US dollar backed stablecoin issuers in the United States. They have comfort that they can mint and burn tokens 24 hours a day, seven days a week, 365 days a year. I think our biggest contribution to the cryptocurrency ecosystem so far is what we call the SEN. We have dozens of digital currency exchanges and over the counter desks, what we would refer to as liquidity providers. We connect them to almost 600 institutional investors. Briatore trading shops, family offices, et cetera. We connect them over the SEN and it's truly a two-sided network. If you think about network effects such as-- everyone's familiar with Facebook, or Instagram, Uber, or Airbnb, those are networks. In the latter cases, they really are two-sided networks. That's what Silvergate has done with SEN. Why is that important? Because if you're a member of the SEN, if you have an account with Silvergate, and you're a participant in the SEN, then you can transact with everybody else on the Silvergate Exchange Network, 24 hours a day, seven days a week, 365 days a year. As you're doing that, we are eliminating the banking friction I talked about earlier. We are also eliminating counterparty risk, because you know that you're dealing with counterparties that are also members of SEN that have been vetted by Silvergate. Putting that together, we've completely eliminated the friction, we've eliminated the counterparty risk, and we brought the legacy 40-hour banking system into the 24/7 365 cryptocurrency markets that never sleeps. About 40% of our institutional investor customers are actually international. They still transact a lot with US dollars. They also want to transact with the Euro and the Japanese yen and the British Pound Sterling, giving them the ability to transact not only with the US dollar, but with other foreign currencies. It has really opened up the SEN for the institutional investors so that it really is a global marketplace. As of September 30th, Silvergate has 928 customers. Most of them are participants in the Silvergate Exchange Network. In the third quarter of 2020, we surpassed $100 billion dollars in lifetime transactions across the SEN. What's really cool is that that growth is accelerating. 76 billion of that 100 billion came in the last year alone in the nine months ended September 30th , 36 billion was in the third quarter, which exceeded the entire volume in all of 2019. December 14th , 2020 - www.realvision.com 4 The Expert View - Crypto: Silvergate: The Banking Solution of the Future I think our customers can take confidence in the fact that Silvergate has been intentionally in this business since 2013. We have excellent relationships with all of our regulatory partners. We're a California State Chartered Bank, our deposits are insured by the FDIC, we're a member of the Federal Reserve, and we engage with our regulators often so that they understand what we're trying to accomplish. We're solving problems for our customers, and we're doing it in a regulatory compliant way. Because a lot of those customers were uncomfortable that they-- did they have a banking partner that was going to be there for them through thick and thin? One of the things that we invested in early on was building an API to help our customers scale. Many banks have APIs that allow their partners to pull a balance or full transaction history, but there aren't many banks that actually open up their system to allow their customers to code to the API to actually initiate transactions. We talked earlier about the fact that we have exchanges connected to institutional investors. If those counterparties are coded to the API, then they can actually take the human element out of the transactional flow with the API. Our customers can literally log in to their online banking portal, and they can move money from their Silvergate account to an exchange who is coded to the API. They can have their funds immediately attributed in their account at the exchange and start trading. Without SEN and without API connection of the SEN, our customers would be stuck in the legacy 40-hour a week banking system. Currently, prime brokerage doesn't really exist in the crypto markets. Capital efficiency really means having the right amount of US dollars or Bitcoin on the right platform at the right time. Because prime brokerage doesn't exist, if you want to trade on an exchange that's over in Europe, you actually have to have dollars or euros on that exchange right now. You can't trade there and then send them the money later. Our solution for this is something that we're referring to that we call SEN Leverage, which is the ability for our customers provided that they have put their Bitcoin on custody with us, then we will lend them additional US dollars against that Bitcoin collateral. The real power is that what we've done is we've integrated with a couple of different platforms and exchange platform, and a custodian that really allows us to leverage the 24/7 nature of the API, which is a game changer for our for our customers because they can literally borrow against their Bitcoin 24 hours a day, seven days a week via the SEN, via API. Equally as important, they can pay down that line, they can actually access the SEN 24/7 to make margin calls. They can send in more dollars. They can pull Bitcoin or US dollars off the platform. Silvergate is the leading provider of innovative financial infrastructure solutions to the digital currency ecosystem. We felt that if we could connect our customers to each other across our platform, we could eliminate the friction and we could also significantly reduce the counterparty risk because they would know that they were dealing with other counterparties who were customers of Silvergate who we've been vetting. |
