The market for digital assets has just experienced a challenging year marked by several high-profile explosions. Three bank closures recently — Silicon Valley Bank, Silvergate Capital Corp., and Signature Bank, all owned by SVB Financial Group — have brought on new strains. After digital asset behemoth Circle Internet Financial Corp., one of the largest issuers of the widely used tokens known for their perceived safety, disclosed it had $3.3 billion in reserves with the bank, SVB’s failure had a ripple effect on the crucial market for stablecoins. The market was shocked when the news led Circle’s token, USD Coin, to deviate from its intended 1-for-1 peg with the dollar. New York authorities shut down Signature Bank on Sunday. The bank still had $16.5 billion in deposits linked to cryptocurrencies as of March 8. The authorities promised to make all of this institution’s depositors whole. In light of this, the market’s biggest concern remains the closure of cryptocurrency-friendly bank Silvergate and its electronic transfers system, the Silvergate Exchange Network. Because the two kinds of infrastructure weren’t linked, over-the-counter trading desks, hedge funds, and other investors who wanted to dabble in crypto had to go through expensive, time-consuming, and cumbersome contortions just to move money between digital assets and banks for years. Traditional banking methods could take days for an investor to wire money from their bank account to an exchange, which was frequently too late to capitalise on the most recent market movement. Banks were closed while cryptocurrency traded around-the-clock, making it impossible to transfer money rapidly between exchanges or on weekends. The Silvergate Exchange Network, also known as SEN, was created by Silvergate in 2017, and this was the turning point. The system made it possible for users, including hedge funds and cryptocurrency companies like Coinbase Global Inc., to move money quickly and easily at any time of day. Because SEN’s use was free, trading companies were able to enter and exit the volatile cryptocurrency market more quickly, cheaply, and risk-freely. The network’s existence contributed to the surge in institutional usage that enabled the most recent crypto bull market. Growth could be briefly halted by its shutdown while new alternatives take off. The ability to settle trades with counterparties, pay employees and bills, and accept invoice payments are just a few of the risks that legitimate cryptocurrency businesses are left exposed to, according to Oliver von Landsberg-Sadie, co-founder of BCB Group, whose payment network is vying for SEN’s clients. “A company without a bank account is rapidly unable to function, and cryptocurrency companies are particularly susceptible to this risk.” Increase in SEN Digital-Asset Customers Slowed SEN processed $563.3 billion in US currency transfers in just one year, a significant decrease from the $787.4 billion it processed in 2021’s bull market. According to Silvergate documents, the network had nearly 1,700 users at its busiest during the third quarter of last year. Already, the lack of SEN is having an impact and making dealing more difficult. According to research company Kaiko, there has been a decline in liquidity, or the ease of trading, for Bitcoin-to-dollar and Bitcoin-to-Tether transactions on some US exchanges between the beginning of March and Saturday. Companies involved in the cryptocurrency industry have been looking for alternative financing and payment options. Alternatives as reliable as SEN are hard to come by. The primary US rival of SEN, Signet, was operated by Signature and allowed businesses to trade payments instantly. Earlier this year, Signature had announced that it was curtailing payments made to cryptocurrency-related businesses. Other banks are limiting deposits linked to cryptocurrency businesses to 10% to 15% and may levy fees in order to compensate for the increased regulatory scrutiny. According to Richard Crone, CEO of payment consultant Crone Consulting, without SEN, fiat conversion expenses could rise by 20% to 40%. Alternatives are starting to emerge. Crypto trust companies are considering joining the fray and offering SEN-like functionality. These companies already hold customer digital assets and enjoy relationships with banks. According to von Landsberg-Sadie, BCB Group, which runs Blinc, a SEN-like payment network for cryptocurrency businesses that is well-liked in Europe, plans to launch with three or four banks in the US shortly. According to von Landsberg-Sadie, BCB has gotten more than 60 inquiries in the past week and is onboarding new clients. It intends to push out dollar payment functionality to its first 12 clients starting next week, he said. Smaller exchanges and over-the-counter desks may “struggle to compete” without access to the same liquidity and resources as they did before, according to Crone, even though some of these alternative networks may depend on a diverse slate of banks for support. Before USD Coin’s depeg, some claimed that banks might use stablecoins more frequently as a result of SEN’s closure. Users can use stablecoins to make purchases on exchanges or on blockchains once they have been converted from dollars. However, using stablecoins comes with some dangers. They still have connections to the conventional financial system and are susceptible to its flaws, as demonstrated by the difficulties faced by USD Coin. Regulators are also in the area. Before USD Coin’s depeg, some claimed that banks might use stablecoins more frequently as a result of SEN’s closure. Users can use stablecoins to make purchases on exchanges or on blockchains once they have been converted from dollars. However, using stablecoins comes with some dangers. They still have connections to the conventional financial system and are susceptible to its flaws, as demonstrated by the difficulties faced by USD Coin. Regulators are also in the area. Conor Ryder, an analyst at Kaiko, stated in an interview that it is “less secure” because you are putting your faith in these stablecoin issuers and this mysterious operation Tether. “If every cryptocurrency company in the US does this, that places more pressure on regulators,” the speaker said. Authorities in New York and the federal government have already pursued a Binance-branded stablecoin known as BUSD that was produced by Paxos Trust Co. on the grounds that it was an unregistered asset. The company that issues tethers is a private one from abroad that was penalised by the Commodity Futures Trading Commission and reached a settlement with the New York Attorney General. Additional governmental scrutiny of stablecoins, which is likely to intensify in the wake of the USD Coin’s problems, may not only limit their use but also force users of digital assets to return to slower, more expensive blockchain networks for interparty token exchanges. For example, during peak Ethereum blockchain usage periods, users occasionally spent more money on transaction costs than they did on the nonfungible tokens they were purchasing.