Coinbase-owned Xapo bank announced its integration with the Bitcoin (BTC) Lightning Network on March 2, becoming the first fully-licensed bank integrated with the Lightning Network.
This integration came at a time when two leading crypto banks – Silvergate and Signature- were experiencing troubles with their operations. Considering the current situation in the crypto banking sector, Xapo’s integration can be perceived as a demonstration of the bank’s bullish sentiment towards the field.
Xapo on Lightning Network
Xapo was founded in 2013 as a wallet and a cold storage custody vault. In 2021, it became the first company that held BTC ever to secure a banking license, thereby becoming a bank. Crypto exchange Coinbase’s custody arm, Coinbase Custody, purchased Xapo in 2019. At the time, Xapo had around $7 billion under custody, which made Coinbase Custody the largest crypto custodian in the world.
To launch the integration, Xapo partnered with Lightspark, a company that offers infrastructure services for companies that want to integrate with the Lightning Network.
The integration allows Xapo bank users to pay for purchases up to $100 using BTC at any vendor that accepts Lightning Network payments. Considering the significant improvements the Lightning Network brings in terms of speed and affordability, Xapo takes pride in being the first fully licensed bank that offers near-instant BTC payments.
Commenting on the integration, Xapo Bank CEO Seamus Rocca said:
“The average transaction confirmation time of one hour combined with potentially large fees during periods of high usage make the Bitcoin network unsuitable for small daily payments such as groceries.
By integrating with the hyper-efficient Lightning Network, we are the first bank in the world to streamline this process and allow our members to pay for small purchases with Bitcoin without having to convert to USD first.”
Turmoil in the crypto banking sector
Silvergate and Signature Banks have been experiencing troubles since the FTX collapse, and it seems like things are getting worse for them.
On March 8, Silvergate Bank announced it would halt banking operations per regulations. The journey that led Silvergate to stop its business started on March 1, when the bank said it’d delay submitting its annual 10-K report by two weeks. Silvergate shares reacted to this by recording a 32% fall during the following hours.
While announcing the delay of the 10-K report, the bank also said it has been facing inquiries from the regulators about its relationship with the failed exchange FTX. Upon this news, several companies that were working with Silvergate cut their ties with the bank. Even though Silvergate has been plotting a joint recovery plan with the Federal Deposit Insurance Corporation, it still decided to halt its operations.
Signature bank’s problems started in September 2022, months after the FTX collapse. Signature’s mid-Q3 report disclosed that the bank lost $4.27 billion in outflows “driven by the recent crypto winter.”
In December, the bank decided to change its outlook and announced it would shrink its crypto-tied deposits by $8 to $10 billion. With the announcement, the bank stated it was “not just a crypto bank” and wanted to “come across loud and clear.” In January, Signature announced another update to its crypto transactions and introduced a $100,000 minimum transaction limit.
Even though Signature was keen on changing its outlook to “not just a crypto bank,” it came forward with its crypto services during the downfall of Silvergate. It is currently serving multiple crypto companies.