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Silvergate Rises on Deal to Issue Facebook-Backed Diem Coin

The Diem Association deal is a 'monumental win' for Silvergate Capital, an analyst says.

Silvergate Capital  (SI) - Get Report shares surged Thursday after Diem Association, a digital-currency group backed by Facebook  (FB) - Get Report, tapped the financial-services company to issue the Diem USD stablecoin.

Shares of the La Jolla, Calif., company at last check were 16% higher at $94.

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Diem Association said in a statement that its Diem Networks US subsidiary would partner with Silvergate Capital, as the association moves its primary operations to the U.S. from Switzerland.

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Diem said it was withdrawing its application for a payment-system license from the Swiss Financial Markets Authority. Silvergate will become the exclusive issuer of the Diem. 

Diem Association is composed of Facebook and 25 other companies and nonprofit groups formerly known as Libra. 

Silvergate is "an ideal partner for Diem as we move forward with a blockchain-based payment system that protects consumers and enhances the integrity of the financial system," Diem Chief Executive Stuart Levey said in the company statement.

A stablecoin is a cryptocurrency, the price of which is designed to be pegged to a cryptocurrency, fiat money, or exchange-traded commodities.

Wedbush analyst David Chiaverin reiterated an outperform rating on Silvergate stock, calling the deal a “monumental win” for the La Jolla, Calif., financial-services company.

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“The widespread adoption of stablecoins on Facebook’s platform could be a game changer for the stablecoin industry," the analyst said, according to Bloomberg.

Chiaverin said that while financial details have not been disclosed, “we believe this is a material development at SI.”

The move toward digital dollars is a “a major shift in the payments landscape” and deserves continued attention, he added.

Last month, Facebook beat Wall Street's first-quarter earnings expectations.

In December Guggenheim analyst Michael Morris raised his price target to $365 from $340 and held his buy rating on the stock at a time when Facebook was eyeing a 2021 debut of its own cryptocurrency,

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