The cryptocurrency industry has waited for five and a half years, and what they got is half a ticket

Author: 0x2333

In October 2020, Kraken submitted an application for a master account to the Federal Reserve. At that time, the DeFi summer had just passed, NFTs had not yet exploded, FTX was still one of the most trusted trading platforms in the industry, and the SEC was still responding to all regulatory questions with "we are still studying."

Five and a half years later, FTX collapsed, its founder is in prison, and the entire industry has gone through a bear market that nearly wiped everyone out. The SEC sued Coinbase, sued Binance, and waved the big stick of "crypto is a security" everywhere. Then Trump won the election, the SEC chair changed, and the enforcement direction made a 180-degree turn.

By March of this year, the Kansas City Fed approved Kraken's application. This cryptocurrency trading platform, which generates $1.5 billion in annual revenue and is sprinting towards an IPO, finally has its own master account with the Fed.

The Wall Has Finally Been Torn Down

But the real weight of this matter lies in the three words "master account."

There has always been a structural wall between traditional banks and crypto companies. Crypto companies do not qualify for direct access to the Fed's payment system; every dollar in and out must go through a traditional bank that holds a master account. This is not a regulatory limitation, but an infrastructure-level isolation. Crypto companies use the currency of private banks, not the currency of the central bank, and there has always been an intermediary between the two.

The risk of this intermediary was fully exposed in 2023. Silvergate and Signature collapsed one after another, and these two banks that specifically served the crypto industry disappeared overnight, throwing the entire industry's dollar channels into chaos, trading platforms could not process deposits and withdrawals normally, stablecoins de-pegged, and some institutions faced a direct liquidity crisis. That crisis made the entire industry realize one thing: relying on corresponding banks means handing your lifeline to others.

The master account solves this problem. Holding a master account means direct access to Fedwire, the interbank real-time gross settlement system operated by the Federal Reserve, established in 1913, and is the lowest-level clearing track in the U.S. financial system. Every business day, Fedwire processes dollar transactions exceeding tens of trillions, including corporate merger payments, treasury settlements, and interbank borrowing, all using this pipeline.

JPMorgan, Bank of America, Wells Fargo—all licensed banks in the U.S. settle with each other through Fedwire, using central bank money, not liabilities of private banks. This system has only been open to one type of institution for over a hundred years: traditional banks under federal regulation. Kraken is now part of it.

What happens after entering this door? A recent case is Square.

In 2020, it obtained an Industrial Loan Company (ILC) license in Utah, essentially gaining access to the Fed's payment system. Before this, Square's loan product, Square Capital, had to be issued through third-party bank partners, who set conditions, charged fees, and determined limits, constraining Square's pricing power and product design space.

After obtaining the license, Square fully integrated its loan business into its own Square Financial Services, internalizing everything from funding sources to risk control to pricing. Within a year, the loan rates and disbursement speeds for small and micro merchants showed visible changes. The financial product line of Cash App then rapidly expanded, including direct deposits, stock trading, and btc-42">Bitcoin transactions, forming a complete retail financial chain from a P2P transfer tool.

Kraken's logic follows the same path. Institutional clients depositing dollars into Kraken previously had to go through corresponding banks for settlement, incurring time and cost losses. After connecting directly to Fedwire, Kraken can handle fiat currency settlements independently, fundamentally reducing the friction costs of large deposits and withdrawals.

More importantly, the master account qualifies Kraken to do what it couldn't do before: provide settlement services backed by the Fed to institutional clients, no longer being "a crypto trading platform that survives on the tolerance of banks." These two statements are not the same for institutional funds.

What Has Five and a Half Years Brought?

The type of account Kraken obtained is called a Skinny Account in the industry. It has entered the door but has had a significant portion of its permissions cut off. There is no discount window, no interest on excess reserves, and no intraday overdraft limit. These are tools that traditional banks use to manage liquidity and earn passive income, and Kraken did not receive any of them.

These restrictions were not invented by the Fed specifically for Kraken. In December 2025, the Federal Reserve released a discussion draft for "Skinny Accounts" for non-traditional institutions, and the framework is as follows: you can access the payment track, but don’t expect full bank treatment. Kraken's account was the first to be approved before this framework was finalized, ahead of the framework itself.

Additionally, Kraken's review level is Tier 3, the strictest category in the Fed's three-tier framework. Tier 1 includes traditional banks with federal deposit insurance, Tier 2 includes institutions without deposit insurance but under federal prudential supervision, and Tier 3 includes all others that do not meet either criterion, including crypto banks, payment innovation companies, or any entity attempting to access the Fed through non-traditional paths. The Fed is completely unfamiliar with you, and you must first prove yourself; the review principles for this tier are simple and brutal.

Very few things have been approved under Tier 3. In the years since the framework's existence, almost nothing has been approved. Applications have been left hanging, with no clear timetable and no predictable outcomes. Kraken's application itself is not special; what is special is that the group of people who took over the approval five and a half years later has changed.

The account initially serves only institutional clients, with retail not involved for now, as clearly stated in Kraken's own announcement. Ordinary users will not feel any changes for the time being.

For institutional clients, it’s another matter.

In mid-2025, Kraken launched Kraken Prime, targeting clients such as hedge funds, asset management companies, and large enterprises that operate with tens of millions or even hundreds of millions of dollars in fiat currency. Before the direct connection to Fedwire, these funds had to go through corresponding banks for transfer, which had business hours, review queues, and their own compliance judgments, and could be directly blocked during special periods. During the days when Silvergate collapsed in 2023, large funds in the industry were effectively cut off.

After connecting directly to Fedwire, the settlement chain has one less link. When hedge funds transfer large dollar positions to Kraken, it goes through the Fed's payment track, arriving in real-time, irrevocable, and not subject to the business hours and risk control judgments of private banks. For institutions that need to precisely control the timing of funds within specific windows, this is an infrastructure-level matter, not a functional update.

Looking ahead, there is another layer. Kraken Prime is currently T+1, and once the direct connection to Fedwire stabilizes, T+0 real-time settlement is the natural next step. The crypto market runs 24 hours, while fiat currency settlements are constrained by business days; once this misalignment is eliminated, Kraken's attractiveness to institutions will be on another level.

For Kraken, which is preparing for an IPO, it no longer needs to compete with Coinbase for the title of "largest compliant crypto trading platform," but rather to become "the first financial institution with direct access to the Federal Reserve." This also adds more legitimacy to its $20 billion valuation.

How Was the Door Opened?

In December 2025, the Federal Reserve released a discussion draft for "skinny accounts," soliciting public opinions with a deadline of February 2026. This is the preliminary procedure for formally establishing a framework: first ask the public, then set the rules, and then approve.

Just after the comment period closed in February, the Kansas City Fed approved the account for Kraken in March. The rules had not yet been finalized, but the approval was granted first.

This sparked great dissatisfaction in the banking industry. The three major banking lobby groups jointly voiced their concerns, and the statement from the Bank Policy Institute (BPI) was very direct: approving before the framework was finalized ignored the public opinions solicited by the Fed itself, and the entire approval process lacked any transparency. Institutions not protected by federal deposit insurance inherently pose a higher risk to the payment system, and this approval did not include a public risk assessment or explain why it was expedited. The American Bankers Association and the Independent Community Bankers of America quickly followed suit.

Their focus of opposition was not "crypto companies shouldn't come in," but rather "the procedure of bypassing rule-making through case-by-case approvals." Columbia University scholar Todd Baker's criticism was even more direct, stating that the Fed kept specific restrictions on Kraken confidential under the guise of "commercial secrets," and government agency approval decisions should not be opaque.

A similar case is Custodia Bank. In January 2023, the Fed rejected its application, citing that "the crypto business model poses inappropriate risks to the Fed's payment system." Custodia subsequently sued, all the way to the Tenth Circuit Court of Appeals, but the court unanimously upheld the original ruling, and Custodia lost.

Same state, same type of institution, same time submitting an application to the same Fed. Custodia was rejected, Kraken was approved.

The key difference between these two cases is not that Kraken's compliance standards are higher. Custodia's compliance investments are equally substantial; its founder, Caitlin Long, has a Wall Street background and made significant contributions to the SPDI legislation in Wyoming. The difference lies in the fact that Custodia's application was reviewed during the Biden administration, under the political atmosphere of Operation Choke Point 2.0, where the Fed was strict with crypto institutions. Kraken's application was reviewed during Trump's second term, with a new SEC chair, the repeal of SAB 121, and the White House publicly declaring its intention to make the U.S. the "global crypto capital."

Same application, different political backgrounds, different results. It illustrates one thing: this door was not opened by rules; it was opened by politics. Politics can open a door, and it can close it again.

Senator Lummis wrote in the approval statement, "I look forward to resolving other pending applications in the coming weeks." Anchorage Digital Bank, the only crypto bank in the U.S. with an OCC national trust bank charter, has already submitted a master account application, which is currently under review. If Anchorage is also approved, the precedent will expand from "Wyoming SPDI" to "OCC federally chartered banks," marking another level of breakthrough.

The court's ruling is very clear: the Fed has discretion; it can approve or deny, and the law does not require it to treat everyone equally. What is replicable is the application path; what is not replicable is the political conditions. The room has indeed been entered, and the door is indeed open. However, the hand that opened this door is not the rules, but the prevailing winds.