Author: Nancy, PANews
After a five-year regulatory battle, Kraken has finally obtained authorization for its master account from the Federal Reserve, becoming the first crypto-native company to receive such approval. This is not only the result of Kraken's compliance efforts but also a significant milestone in the history of crypto development, further intensifying the competition between old and new financial forces.
Obtaining a Federal Reserve "ticket" requires an innovative banking license as a key to success.
On March 4, Kraken announced that its subsidiary, Kraken Financial, had been officially approved to open a master account with the Federal Reserve, becoming the first digital asset bank in U.S. history to directly access the Federal Reserve's payment infrastructure.
This historic breakthrough marks a significant step forward for crypto-native companies and represents Kraken's hard-won entry into the market after more than five years of effort.
Since Kraken submitted its application to the Federal Reserve Bank of Kansas City in October 2020, the process has undergone rigorous regulatory review, meticulous communication, and a comprehensive operational audit before finally receiving approval. This authorization allows Kraken Financial to directly settle funds through Fedwire, the Federal Reserve's core payment system , which processes over $4 trillion in transactions daily.
Previously, crypto platforms like Kraken had to use intermediary banks for fiat currency transfers, facing challenges such as high costs, long delays, and operational complexity. Now, through its Federal Reserve master account, Kraken can conduct direct settlements like traditional banks, significantly improving transaction efficiency and reducing operating costs.
Kraken Co-CEO Arjun Sethi stated, "With a master account with the Federal Reserve, we are no longer a peripheral player in the U.S. banking industry, but a directly connected financial institution."
Despite receiving authorization for a master account from the Federal Reserve, Kraken Financial's account privileges are not entirely the same as those of traditional banks. Instead, it uses a simplified version of the master account proposed by the Fed (Skinny Master Account). This type of account only provides basic payment services; Kraken Financial cannot earn interest from the Fed's reserves, nor can it access the Fed's emergency loans (i.e., the discount window) . This account model is currently in the pilot phase, and according to a recent disclosure by Federal Reserve Governor Waller, it is planned to be launched by the end of this year.
Kraken Financial's initial master account authorization period is one year, with related services rolled out in phases, initially focusing on supporting institutional client activities on the platform. Institutional clients are one of Kraken's key growth engines, and Kraken aims to have institutional investors account for one-third of its revenue. With master account authorization, Kraken can provide these institutional clients with faster and more efficient fiat currency transfers, significantly reducing operational complexity, costs, and reliance on intermediary banks, laying the foundation for further expansion of its institutional business.
Kraken Financial's successful acquisition of this authorization is not only due to the relatively favorable regulatory environment in the United States, but also closely related to its Special Purpose Depository Institution (SPDI) status.
Arjun Sethi also acknowledged that SPDI has created a unique and robust foundation that enables Kraken to settle directly on Fedwire, reducing its reliance on correspondent banks and directly integrating regulated fiat liquidity into the digital asset market.
In fact, as early as the second half of 2020, Kraken announced that Wyoming had approved its application to become an SPDI, making it the first compliant bank in the United States to offer cryptocurrency deposit, custody and trust services to its clients.
SPDI (Special Purpose Disclosure) is an innovative banking license launched by the state of Wyoming in 2019, specifically for cryptocurrency and blockchain businesses, providing crypto companies with a legal channel to access the traditional financial system. SPDI has stringent regulatory requirements, including holding highly liquid assets equivalent to 100% of customers' fiat currency deposits, prohibiting the use of customer deposits for lending, and requiring sufficient capital and surplus funds. These stringent conditions ensure the soundness and compliance of SPDI banks, enabling Kraken Financial to successfully meet the requirements of the Federal Reserve's master account.
It is worth noting that Kraken Financial's successful bid will serve as a model for more crypto institutions, potentially attracting more companies to apply for SPDI licenses in Wyoming.
While the granted access to the Federal Reserve's master account is still in its limited phase, this development is undoubtedly a significant step for crypto institutions towards entering the mainstream financial system. As time progresses, Kraken Financial plans to continue communicating with the Federal Reserve to secure more comprehensive permissions and further expand its service capabilities in the future.
This could trigger a surge in applications from crypto institutions, and Wall Street is getting restless.
For the crypto industry, which has long been excluded from the traditional banking system, Kraken's approval of its master account by the Federal Reserve is undoubtedly a milestone. This is not only a victory for Kraken in opening the door to the mainstream financial market, but it may also provide a precedent that other crypto platforms can learn from.
Publicly available information shows that several crypto companies, including Custodia Bank, Anchorage Digital, and Ripple, have applied for Federal Reserve master accounts. As the Federal Reserve may open up simplified master accounts to more crypto companies in the future, the application trend among crypto institutions is expected to accelerate.
However, the Federal Reserve's change of attitude has also sparked concerns and opposition from the US banking industry.
The Bank Policy Institute (BPI), representing Wall Street giants such as JPMorgan Chase, Bank of America, Wells Fargo, and Goldman Sachs, expressed "deep concern" over Kraken's approval before the Federal Reserve had finalized its streamlined master account policy framework. BPI criticized the lack of transparency in the approval process and the absence of explanation regarding mitigation measures to address potentially significant risks. Unregistered institutions like SPDI pose a greater risk to the payment system than traditional depository institutions because their regulatory and oversight are far less stringent.
Rebeca Romero Rainey, president of the Independent Community Bankers Association (ICBA), expressed similar concerns, pointing out that granting access to master accounts to non-bank entities and crypto firms—privileges traditionally highly regulated by the US Federal Reserve—could pose potential risks to the banking system. The American Bankers Association (ABA) also criticized the move, arguing that it circumvents regulatory rules, allowing crypto companies to "free-ride" on Federal Reserve infrastructure without incurring equivalent regulatory burdens.
In fact, this opposition has existed since the Federal Reserve first proposed the streamlined master account concept. At that time, some argued that master accounts should be limited to insured, low-risk institutions to avoid unfair competition and systemic risk.
Now, with Kraken's approval, this controversy has once again been thrust into the spotlight.
Regulatory approvals intensify the power struggle between the old and new, and the era of big banks is coming to an end.
Today, with U.S. regulators frequently giving the green light to crypto institutions, crypto payments are integrating into mainstream finance, and the competition between traditional banks and crypto companies is intensifying.
Recently, the U.S. Office of the Comptroller of the Currency (OCC) has continued to approve national trust banking licenses for several crypto-related companies, including Ripple, Circle, Crypto.com, Paxos, BitGo, and Bridge. World Liberty Trust, an entity under the Trump family's WLFI project, has also submitted a similar application. These licenses enable them to provide digital asset custody, stablecoin services, staking, and other financial activities under federal regulation. This trend not only represents a further integration of crypto businesses with traditional finance but also signifies that crypto payments are challenging the banking system.
In response to this trend, the Bank of America lobbying team reacted quickly, urging the OCC to slow down the issuance of national trust banking licenses to crypto companies. They also emphasized that the regulatory framework of the GENIUS Act is not yet fully clear, the existing regulatory environment is uncertain, and uninsured digital asset trusts still face unresolved risks in areas such as asset segregation, conflicts of interest, and cybersecurity.
It's worth noting that Trump launched a debanking campaign late last year, prompting the OCC to release a new report. This report reviewed nine of the largest national banks in the US, finding that between 2020 and 2023, these banks restricted access to banking services for certain industries when formulating their public and private policies, particularly setting higher entry barriers for companies with controversial or environmentally sensitive businesses. The OCC warned that these banks could face legal consequences. This action reflects the US government's attempt to create more space for the crypto industry to grow.
Meanwhile, the CLARITY Act, currently being pushed forward by the US Congress, is a focal point for the crypto industry, but it has stalled due to conflicts of interest between banks and the crypto sector. The crux of the controversy lies in whether stablecoin holders should be allowed to receive interest or rewards. The banking industry argues that such a practice would make stablecoins a substitute for deposits, attracting large amounts of bank deposits, threatening the stability of the community banking system, and potentially triggering bank runs. To protect their interests, banks have been lobbying for a clause prohibiting stablecoin yields in the CLARITY Act. The crypto industry, however, strongly opposes this, arguing that it is essentially bank protectionism, stifling innovation, limiting user choice, and weakening the dollar's position in global digital finance.
Both sides stuck to their own versions of events and refused to back down. Trump, on his Truth Social media platform, strongly criticized banking institutions for attempting to undermine the GENIUS Act and obstruct the passage of the CLARITY Act. He stated that these acts were crucial to ensuring the United States becomes the "crypto capital" and warned that if no action was taken, the industry could flow to other countries. Trump urged banks to reach an agreement with the cryptocurrency industry, emphasizing that this was in the best interests of the American people, and called for swift market restructuring so that "Americans can get more out of their money."
Currently, Mike Selig, Chairman of the U.S. Commodity Futures Trading Commission (CFTC), has also expressed support for pushing forward the CLARITY Act, believing it to be a key step in ensuring the U.S. maintains its leadership in global innovation. He emphasized, "Now is the time to act," and is prepared to implement the act during Trump's term. Meanwhile, Trump's appointment of Paul Atkins as Chairman of the U.S. Securities and Exchange Commission (SEC) is also interpreted as providing regulatory clarity to the crypto industry through executive means, giving the SEC the power to formulate necessary crypto industry rules without waiting for congressional legislation.
Eric Trump, the second son of Donald Trump and co-founder of WLFI, recently publicly criticized large banks (such as JPMorgan Chase, Bank of America, and Wells Fargo) for lobbying tirelessly to prevent Americans from obtaining higher savings returns and to try to block any rewards or benefits offered to customers. The American Bankers Association and other lobbying groups are spending millions of dollars trying to pass legislation like the Clarity Act to prohibit or limit these returns, citing "fairness" and "stability" as their real aim: to protect their monopoly on low interest rates and prevent deposit outflows.
As the regulatory environment becomes clearer, crypto companies are moving from the fringes to the mainstream, and the competition with traditional banks will only intensify. As Eric Trump stated, the era of large banks profiting from barriers is fading as customers become more aware of more efficient asset return paths.
In the struggle between old and new financial forces, driven by technological innovation and user demand, this movement for the redistribution of financial power will inevitably intensify.
