Silvergate buys Diem and reveals its stablecoin launch plans

By Raffaele Redi
• Updated

Silvergate stablecoin set to launch later in 2022 will be designed on Diem’s model

The US payment platform Silvergate Capital Corporation has acquired the crypto venture Diem, launched by Facebook founder Mark Zuckerberg, in a deal valued at $182m (£135m, €162m).  

Silvergate, the former Diem partner that was meant to be the issuer of a Diem USD stablecoin, now plans to launch its own USD-backed stablecoin later in 2022, CEO Alan Lane has announced. “In the digital asset industry, money moves across the globe around the clock,” said Lane as he outlined Silvergate’s plans to launch a stablecoin.

On the other hand, Diem – once described as “wolf in sheep’s clothing” in 2020 by Germany’s then finance minister Olaf Scholz – is going to wind down, following repeated setbacks with US federal regulators.

In a statement, Diem CEO Stuart Levey said: “Despite giving us positive substantive feedback on the design of the network, it nevertheless became clear from our dialogue with federal regulators that the project could not move ahead. As a result, the best path forward was to sell the Diem group’s assets, as we have done today to Silvergate.” 

The deal

As part of the sale, Silvergate has acquired Diem’s existing stablecoin infrastructure, which it plans to further invest in and enhance its existing stablecoin infrastructure. Diem’s intellectual property and other technology assets related to running a blockchain-based payment network were part of the deal.

Other assets acquired by Silvergate include development, deployment and operations infrastructure, as well as the tools for running a blockchain-based and regulatory-compliant payment network – which has been operating in a pre-launch phase – designed to facilitate payments for commerce and cross-border remittances.

Under the terms of the purchase agreement, Silvegate issued around 1.2 million shares of class A common stock to Diem and paid $50m in cash, resulting in an aggregate value of $182m. As part of integrating the acquired assets into Silvergate’s existing technology, the company expects to incur about $30m of additional costs in 2022.

The Silvergate stablecoin: what we know now

Thanks to its close partnership with Diem, Silvergate said it has gained ”deep familiarity with the network and developed strong appreciation for its potential to enable a Silvergate-issued stablecoin that will power the future of global payments” later in 2022.

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“Through conversations with our customers, we identified a need for a US dollar-backed stablecoin that is regulated and highly scalable to further enable them to move money without barriers,” said Silvergate’s Lane.

“As previously stated on our Q4 2021 earnings call, it remains our intention to satisfy that need by launching a stablecoin in 2022, enabled by the assets we acquired today and our existing technology.”

Diem’s last goodbye

According to what may be the last company announcement from Diem, Levey said the organisation’s stablecoin was considered by one senior US regulator to be “the best-designed stablecoin project the US Government had seen”. 

“We are gratified that the subsequent Report on Stablecoins issued by the President’s Working Group on Financial Markets validated many of Diem’s core design features. Those features address not only the risks related to the issuance of a stablecoin, but also the risks associated with transferring stablecoins between parties,” he added.

“We remain confident in the potential for a stablecoin operating on a blockchain designed like Diem’s to deliver the benefits that motivated the Diem Association from the beginning. With today’s sale, Silvergate will be well-placed to take this vision forward.

“Over the coming weeks, the Diem Association and its subsidiaries expect to begin the process of winding down, but we look forward to seeing the design choices – and the ideals – of Diem thrive.”

Following the announcement, the Nasdaq-listed Meta Platforms Inc (FB) closed yesterday at $313.26, up 3.83%, while the NYSE-listed Silvergate Capital Coproration (SI) saw a 12.11% increase, to close yesterday at $107.74.

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