Signet Platform in Limbo? Signature Bank Closure Shakes Crypto Banking, Coinbase Remains Operational

The recent closure of Signature Bank by state officials sent ripples through the financial world, especially within the cryptocurrency sector. Signature Bank, a known haven for crypto companies, was shut down on Sunday, March 12th, 2023, to “protect depositors.” But what does this mean for Signet, Signature Bank’s proprietary blockchain-based digital payments platform, a critical piece of infrastructure for institutional crypto clients?

Is Signet Still Operational? Navigating Uncertainty After Signature Bank’s Fall

While the dust settles, a key question looms: Is Signet still functioning? According to a source who spoke to CoinDesk, the answer, for now, is yes. Signet, the real-time payments platform that has become a cornerstone for institutional crypto transactions, continues to operate. This is crucial because Signet offers 24/7 crypto banking capabilities, a rarity in the traditional financial world. Signature Bank’s assets have been transferred to Signature Bridge Bank, a temporary entity managed by the FDIC. But will Signet remain a priority under this new structure?

To understand Signet’s significance, let’s rewind a bit.

What is Signet and Why is it Important for Crypto?

Launched on January 1, 2019, Signet is not your typical banking platform. It’s a:

• Proprietary Blockchain-Based Network: Signet leverages blockchain technology to facilitate real-time digital payments. This is a game-changer for crypto firms that need to move funds quickly and efficiently, 24/7.
• Institutional Focus: Signet is specifically designed for institutional crypto clients, catering to businesses that require robust and reliable banking services for digital assets.
• 24/7 Availability: Unlike traditional banking systems with limited operating hours, Signet offers round-the-clock service, perfectly aligning with the always-on nature of the crypto market.

In 2020, Fireblocks, a leading digital asset security platform, partnered with Signet to enhance the security of digital asset transfers, storage, and issuance. This collaboration further solidified Signet’s reputation as a trusted platform within the crypto industry.

The Domino Effect: Silvergate’s Collapse and the Reliance on Signet

Just days before Signature Bank’s closure, Silvergate Bank, another crypto-friendly institution, announced its voluntary liquidation. Silvergate’s SEN (Silvergate Exchange Network) platform, a competitor to Signet, also ceased operations. This collapse of SEN amplified the importance of Signet, making it one of the few remaining 24/7 crypto banking platforms. For many crypto businesses, Signet was becoming an increasingly vital lifeline.

However, Signature Bank’s sudden closure throws a wrench into the works. While initial reports suggest Signet is still technically running, the long-term implications are far from clear.

Conflicting Signals: Is Signet Really “Business as Usual”?

Signature Bridge Bank’s CEO, Greg D. Carmichael, released a statement assuring clients that the bank would continue to provide a “full suite of loan, deposit, and banking services.” Notably, the press release made no mention of Signet. This omission raised eyebrows and fueled concerns about Signet’s future.

Adding to the confusion, Circle CEO Jeremy Allaire, a client of Signature Bank and the CEO of the company behind USDC stablecoin, tweeted that Signet was unable to create and redeem tokens. He indicated that BNY Mellon settlements would be used as an alternative. This statement directly contradicted the initial reports of Signet’s continued operation, at least in terms of USDC transactions.

CoinDesk pressed Signature Bridge Bank’s source for clarification on these conflicting messages. The response suggested that Allaire’s tweet might have been sent before the official statement affirming Signature Bridge Bank’s operational status. However, the lack of explicit confirmation regarding Signet in the official statement leaves room for doubt.

Fireblocks CEO Michael Shaulov offered a cautious perspective, stating Signet “looks like it’s theoretically working.” This cautious optimism highlights the uncertainty surrounding the platform’s full functionality and long-term viability under the new FDIC management.

Coinbase’s Contingency Plans and the Importance of Diversification

Amidst this banking turmoil, Coinbase, a major cryptocurrency exchange (COIN), reassured its users that it’s “business as usual.” Coinbase Senior Manager of Corporate Communications, Natasha LaBranche, stated, “As reported on Twitter, Coinbase continues to operate as usual…We want USDC:USD conversions 24/7/365.” This commitment to continuous USDC conversions underscores the importance of stable and reliable banking partners for crypto exchanges.

Coinbase’s support page lists Signature Bank alongside JPMorgan Chase, Cross River Bank, and Pathward Bank (formerly MetaBank) as its FDIC-insured banking partners. Interestingly, even before the current crisis, Coinbase had acknowledged the importance of diversification. Their website states, “Although we have trust in our bank partners, we do have contingency plans and duplicate payment rails to ensure we could continue to service our clients and offer them access to their cash kept with Coinbase if we experienced changes with our bank partners.”

This proactive approach to risk management is proving crucial now. Having “duplicate payment rails” and contingency plans allows Coinbase to navigate the disruption caused by Signature Bank’s closure and ensure uninterrupted service for its users. This likely involves leveraging its other banking partners like JPMorgan Chase and exploring alternative payment solutions in the short term.

Key Takeaways and the Future of Crypto Banking

The Signature Bank saga highlights several critical points for the crypto industry:

• The Importance of 24/7 Banking: Platforms like Signet are vital for the crypto market’s always-on nature. The disruption caused by its potential instability underscores the need for more robust 24/7 crypto banking solutions.
• Diversification is Key: Coinbase’s contingency plans and diversified banking partnerships demonstrate the importance of not relying on a single banking institution, especially in a volatile market.
• Regulatory Scrutiny: The rapid closures of Silvergate and Signature Bank will likely lead to increased regulatory scrutiny of banks servicing the crypto industry. This could result in stricter compliance requirements and potentially impact the availability of banking services for crypto firms.
• The Need for Resilient Infrastructure: The crypto industry needs to build more resilient financial infrastructure that can withstand shocks in the traditional banking system. This might involve exploring decentralized finance (DeFi) solutions and further developing alternative payment rails.

What’s Next for Signet and Crypto Banking?

The immediate future of Signet remains uncertain. While it may be “theoretically working,” its long-term stability and operational capacity under FDIC control are open questions. The crypto industry is watching closely to see how Signature Bridge Bank will handle Signet and whether it will continue to serve as a vital artery for institutional crypto transactions.

The events of the past week serve as a stark reminder of the interconnectedness of the crypto and traditional financial worlds. As the crypto industry matures, building robust, diversified, and resilient financial infrastructure will be paramount to ensure its continued growth and stability. The Signet situation is a critical test case, and its resolution will undoubtedly shape the future landscape of crypto banking.