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 was down by 40% in premarket trading, following a business update released on Thursday. In the update, the La Jolla, California company said crypto deposits had dropped to just $3.8 billion in the final three months of last year, compared to almost $12 billion in the prior 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.”
Following the collapse of FTX and the resulting domino effect of failures across the crypto ecosystem, Silvergate said $150 million of its deposits were from customers that have filed for bankruptcy.
Diem done?
Now the bank has announced that it will lay off 200 employees, roughly 40% of its workforce. In a 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.
The group will also abandon certain projects, including its plans for a blockchain-based payment 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.”
Lane added that in the current operating environment, “it’s going to be really challenging to bring a tokenized dollar […] to market anytime soon.
Silvergate had already exited a mortgage warehouse lending business late last year, due to rising interest rates and falling mortgage volumes.
“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.
Shares in the NYSE-listed corporation dropped more than 40% in pre-market trading following the update.
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”.
But this did not stop analysts from Morgan Stanley from downgrading their rating on the business last month, as they predicted a slump in deposits amid the FTX fallout.
The company has also found itself on the receiving end of a class-action lawsuit alleging that it breached its fiduciary duty with respect to deposits made by FTX and its sister firm Alameda Research. Other law firms are also putting together 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.
Stay on top of crypto news, get daily updates in your inbox.
Source: https://decrypt.co/118483/silvergate-stock-down-40-following-diem-write-off-job-cuts
