Amid a “crisis of confidence” across the cryptocurrency industry, crypto banking group Silvergate Capital will cut 40% of its workforce and abandon some projects—including a blockchain-based payment solution based on Meta’s abortive Diem project.
Silvergate stock down by 40% Premarket trading was affected by a Thursday business update. According to the update, crypto deposits have dropped to $3.8 billion in three months, as compared to nearly $12 billion during the previous quarter.
“This [past year] was a much more widespread deleveraging of the ecosystem that obviously culminated with the collapse of FTX,” Alan Lane, chief executive of Silvergate said on a call following the announcement. “When you put all of that in context, what we have seen is a lot of institutional players—there’s just been this crisis of confidence.”
Silvergate revealed that $150 million of its funds were from customers who filed for bankruptcy following the collapse and subsequent domino effect across the crypto ecosystem.
The bank now plans to lay off 200 workers, or roughly 40% of its workforce. The bank announced that it will lay off 200 employees, or roughly 40% of its workforce. statement issued to the stock market on Thursday, Silvergate said it had increased headcount “at a rapid rate” last year, but now needed to adjust to the “economic realities facing the digital asset industry today”.
The layoffs will cost $8 million to complete, but Lane said it was “too early” to say how much money they would save the company.
It will also end certain projects, including its plans to develop a blockchain-based payments solution. The decision means it will take a $196 million write-down on technology it purchased from Meta’s failed Diem project.
“There are still people on the project,” Lane said in regard to Diem. “As we sit here today, we will obviously have to continue to evaluate.”
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Silvergate had already quit a mortgage warehouse lending firm late last year due to rising mortgage volumes and declining interest rates.
“At this point we’re not able to comment on whether the first quarter will actually be profitable,” Lane said on the call.
He described where the company’s deposits will be in the future as a “wild card.”
“It wasn’t too long ago that we as a company were at this very level in terms of deposit levels and employee headcount,” he said, adding that the company looks similar to how it did two years ago.
Following the update, shares in the NYSE-listed company fell more than 40% in premarket trading.
Silvergate and FTX
Collapsed crypto exchange FTX accounted for around $1 billion of the assets held by Silvergate from digital asset customers by the end of 2022’s third quarter.
Lane said at the time of FTX’s implosion in November that the relationship between the two was “limited to deposits”.
Morgan Stanley analysts did downgrade their rating on the company last month. The analysts had predicted a dip in deposits due to the FTX crash.
A class-action lawsuit has been filed against the company alleging that it violated its fiduciary obligation in relation to deposits made by FTX or its sister firm Alameda Research. Other law firms are also looking into possible legal action.
Answering a question on Thursday’s call about the lawsuits, Lane said: “There’s a lot of FUD out there, a lot of misinformation, but we are a regulated financial institution operating in this space for nine years, so we obviously take our responsibility very seriously.”
Silvergate’s shares were already drifting lower prior to the FTX debacle, thanks to lower-than-expected Q3 earnings and the delay of the now-scrapped Stablecoin project.