In Buying Diem’s Stablecoin, Silvergate Bank Makes Itself a Contender

With its decision this week to spend $200 million to buy the assets of the Diem Association’s largely launch-ready stablecoin, Silvergate Bank has the potential to become a serious competitor to the likes of Tether’s USDT and Circle’s USD Coin stablecoins overnight.

The first U.S. bank willing to work with cryptocurrency exchanges as a fiat on- and off-ramp, Silvergate has more than 1,300 crypto and blockchain customers, as well as an existing Diem partnership in place. And had planned to launch its own stablecoin at some point.

But the Diem purchase could take the small financial institution to another level almost overnight, making it effectively the first real, FDIC-insured bank to issue a stablecoin.

“Through conversations with our customers, we identified a need for a U.S. dollar-backed stablecoin that is regulated and highly scalable to further enable them to move money without barriers,” Slivergate Capital CEO Alan Lane said in a release.

That comes with a substantial credibility bonus when it comes to the faith and confidence that the dollar-reserves backing its stablecoin are real and audited — a serious concern the Federal Reserve highlighted when it released its long-awaited stablecoin report this week.

See: Fed Paper Finds Stablecoin Risks Are Manageable, and Come With Rewards

First Mover

It also brings a substantial benefit in terms of name recognition.

In announcing it has initiated coverage of Silvergate Capital today, B. Riley analyst Steve Moss said “SI’s first-mover advantage” as puts it in a strong position “to create a stablecoin and a payments network we believe has the potential to generate long-term upside.”

It also puts the bank in “pole position” to build partnerships with major commercial brands, notably Meta.

That comes as banks are moving quickly to adapt to crypto payment, NCR Digital Banking President Doug Brown told PYMNTS’ Karen Webster in January. The reason, he said, is simple: They are following customers’ dollars to third party wallets.’’

Read more: Banks Rush to Crypto to Keep Deposits From Leaving Customer Accounts

“With banks [and credit unions] we’re seeing … a lot of interest,” Brown said. “C-levels are now engaging and focusing on it because they’re getting inbound inquiries and customers asking for it.”

It won’t be only first bank-issued stablecoin — three small, FDIC-insured banks tested a stablecoin called USDF last month. But they are far behind Silvergate in terms of name recognition, both within the crypto industry and with the strongly built and tested Diem stripped of the Facebook anchor.

Learn more: US Banks Plan USDF Stablecoin

Another competitor, technically, is Paxos’ Pax Dollar (USDP), with a market capitalization of nearly $1 billion the No. 7 stablecoin. It was the first cryptocurrency industry firm issued a banking charter by the Office of the Comptroller of the Currency when it was headed up by pro-crypto Brian Brooks.

Read also: Paxos Gets Preliminary Approval For US Bank Charter

A Growing Field

It’s worth noting that at its June 2019 launch, Diem, then known as Libra, was supported by a number of very high-profile payments companies, including Mastercard, Visa, and PayPal. And while they jumped ship early on due to political opposition that included outright threats to the credit card issuers, their interest in stablecoin payments has remained strong.

Which should help a Silvergate Diem stablecoin capture their interest.

Mastercard has been working on making it easier to let debit cardholders spend their crypto at the point of sale, most recently teaming up with cryptocurrency platform Voyager.

See also: How Mastercard Is Taking Crypto To The Point Of Sale

Visa, meanwhile, announced support for USDC stablecoin transaction settlement in March and in September revealed plans for a universal payment channel usable by cryptocurrencies, stablecoins and central bank digital currencies.

Also read: Visa Unveils Universal Payment Channel for Blockchain

And PayPal first supported the purchase of bitcoin and three other cryptocurrencies within its app, opened its 32-million-strong merchant network to crypto payments, and has even been experimenting with a PayPal Coin.

See: Does PayPal’s Stablecoin Ambition Signal its Growing Interest in the Remittance Market?

Now, Silvergate’s biggest challenge is to get a Diem stablecoin out the door.