I've been in the crypto industry for five and a half years, and all I got was half a ticket.

In October 2020, Kraken submitted a Master Account application 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 exchanges in the industry, and the US SEC was still responding to all regulatory issues with "we are still studying."

Five and a half years later, FTX collapsed, the founder was in jail, the entire industry went through a bear market that almost wiped everyone out. The SEC sued Coinbase, sued Binance, wielding the big stick of "crypto is a security" everywhere. Then Trump won the election, the SEC chairman changed, and enforcement took a 180-degree turn.

Fast forward to March of this year, the Kansas City Fed approved Kraken's application. This crypto exchange platform, with a $15 billion annual revenue and aiming for an IPO, finally got its own Fed master account.

The Wall Has Finally Come Down

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

There has always been a structural barrier between traditional banks and crypto companies. Crypto companies did not have direct access to the Fed's payment system. Every dollar in and out had to go through a traditional bank that held the master account. This was not a regulatory restriction but an infrastructural barrier. Crypto companies were using private bank money, not central bank money, always separated by an intermediary.

The risk of this intermediary was fully exposed in 2023. Silvergate and Signature went bankrupt one after another, two banks specialized in serving the crypto industry disappeared overnight, the entire industry's USD channel fell into chaos, exchanges could not process deposits and withdrawals normally, stablecoins depegged, and some institutional liquidity directly ruptured. That crisis made the entire industry realize one thing: relying on correspondent banks means entrusting your lifeblood to others.

The master account solves this problem. Holding a master account means direct access to Fedwire, the Fed-operated real-time gross settlement system, established in 1913, the lowest-level clearing track in the US financial system. Every business day, Fedwire processes trillions of dollars in USD flows, handling corporate mergers and acquisitions, Treasury securities settlements, interbank lending, all flowing through this pipeline.

JPMorgan, Bank of America, Wells Fargo, all licensed US banks settle with each other through Fedwire, using central bank money, not private bank liabilities. This system has only been open to one category of institutions for over a hundred years: federally regulated traditional banks. Now Kraken is in it too.

What happens after stepping through this door? The most recent example is Square.

In 2020, it obtained an Industrial Loan Company (ILC) charter in Utah, essentially stepping into the Federal Reserve's payment system. Prior to this, Square's lending product, Square Capital, had to be originated through third-party bank partners, with the partners setting terms, fees, and determining credit limits, limiting Square's pricing power and product design flexibility.

After obtaining the charter, Square fully brought its lending business in-house to its Square Financial Services, internalizing everything from funding sources to risk management to pricing. Within a year, there were visible changes in small business loan interest rates and funding speed. The Cash App's financial product line subsequently expanded rapidly, offering direct deposits, stock trading, btc-42">bitcoin buying and selling, growing a complete retail financial chain from a peer-to-peer payment app.

Kraken follows the same logic. Previously, institutional client deposits into Kraken required clearing through correspondent banks, incurring time and cost inefficiencies. After direct Fedwire access, Kraken can autonomously handle fiat settlements, fundamentally reducing the friction costs of large inbound and outbound transfers.

More importantly, the master account enables Kraken to do things it couldn't do before, providing Fed-endorsed settlement services to institutional clients, no longer being a "cryptocurrency exchange platform surviving on bank tolerance." For institutional funds, these two sentences are not the same thing.

What did five and a half years bring?

The account type Kraken obtained, known in the industry as a Skinny Account, is a "lean account." It stepped through the door but had a significant portion of its permissions cut off. There is no discount window, no interest on excess reserves, and no same-day intraday overdraft limits. These are tools traditional banks use to manage liquidity and earn passive income, none of which Kraken received.

These restrictions were not something the Fed invented on the spot for Kraken. In December 2025, the Federal Reserve issued a notice of proposed rulemaking for "Skinny Accounts" for non-traditional institutions, and this is the framework: you can access the payment rails, but don't expect full bank treatment. Kraken's account was the first to be approved under this logic before the framework itself was established.

Furthermore, Kraken's review level is also Tier 3, the strictest category in the Federal Reserve's three-tier framework. Tier 1 comprises traditional banks with federal deposit insurance, Tier 2 includes non-deposit-insured institutions subject to federal supervisory oversight, and Tier 3 includes all others that do not meet either of the above criteria, including crypto banks, payment innovators, or any entity attempting to access the Fed through non-traditional means. If the Fed doesn't know you at all, you have to prove yourself first; the review principles for this tier are straightforward and blunt.

Only a few things have been approved in Tier 3. Over the years, almost nothing has been approved. Applications sit there with no clear timeline, no expected outcome. Kraken's application itself is not special; what's special is that the group of people who took over the approval process changed hands five and a half years later.

Account onboarding is only for institutional clients, not yet for retail, as clearly stated in Kraken's own announcement. Regular users will not currently feel any changes.

The situation is different for institutional clients.

In mid-2025, Kraken launched Kraken Prime, targeting hedge funds, asset management firms, and large corporations that deal with millions to billions of dollars in fiat on a daily basis. Before the Fedwire direct connection, these funds had to go through correspondent banks, which have operating hours, review queues, their own compliance checks, and could be blocked directly in special circumstances. During the days when Silvergate went under in 2023, major funds in the industry were essentially cut off.

After the direct connection to Fedwire, one step in the settlement chain is removed. Hedge funds transferring large USD positions to Kraken go through the Fed's payment rails, settling in real-time, irrevocably, without being bound by private bank operating hours and risk assessments. For institutions that need to precisely control the timing of fund movements within a specific window, this is an infrastructure-level matter, not just a feature update.

Looking ahead, there is another layer. Currently, Kraken Prime operates on a T+1 basis. After stabilizing the Fedwire direct connection, moving to T+0 real-time settlement is the natural next step. With the crypto market running 24/7 and fiat settlements restricted to business days, once this mismatch is eliminated, Kraken's appeal 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 exchange platform" but rather aims to become the "first financial institution directly linked to the Federal Reserve." This also adds more credibility to its $200 billion valuation.

How Was the Door Opened?

In December 2025, the Federal Reserve released a notice of proposed rulemaking for "skinny accounts," soliciting public feedback with a deadline in February 2026. This is a preliminary step in formalizing the framework: ask the public first, set the rules, then approve.

Just after the February feedback period closed, in March, the Kansas City Fed approved the account for Kraken. The rules weren't finalized yet, but the approval came first.

This has sparked significant backlash from the banking industry. The three major banking lobbying groups united to speak out, with the Bank Policy Institute (BPI) issuing a direct statement. The approval was given before the framework was finalized, disregarding the public feedback collected by the Fed and lacking transparency throughout the entire approval process. Institutions not covered by federal deposit insurance pose higher risks to the payment system itself, and this approval occurred without a public risk assessment or an explanation for the rushed timeline. The American Bankers Association and Independent Community Bankers of America quickly followed suit.

Their opposition is not about "crypto firms shouldn't be involved," but rather about "using individual case approvals to bypass rule-making procedures." Columbia University scholar Todd Baker's criticism was more pointed, highlighting that the Fed cited "commercial confidentiality" to withhold the specific terms of restriction on Kraken. Government agencies' approval decisions should not lack transparency.

A similar case is that of Custodia Bank. In January 2023, the Fed rejected their application, stating that "Custodia's crypto business model poses an undue risk to the Fed's payment system." Custodia subsequently sued, escalating to the Tenth Circuit Court of Appeals, which unanimously upheld the original ruling, resulting in Custodia's defeat.

Same state, same type of institution, applications submitted to the same Fed at the same time. Custodia was rejected, Kraken was approved.

The key difference between these two cases is not that Kraken has higher compliance standards. Custodia is equally committed to compliance, with founder Caitlin Long coming from Wall Street and making significant contributions to Wyoming's SPDI legislation. The difference lies in Custodia's application being reviewed during the Biden administration, under the political atmosphere of Operation Choke Point 2.0, where the Fed strictly scrutinized crypto firms. Kraken's application was reviewed during Trump's second term, with a new SEC chair and the repeal of SAB 121, as the White House openly declared its intention to make the U.S. the "global capital of crypto."

Same application, different political context, different outcomes. It illustrates that this door wasn't opened by rules but by politics. Politics can open a door and then close it again.

Sentator Lummis wrote in the approval statement, "Looking forward to resolving other pending applications in the coming weeks." Anchorage Digital Bank, the only U.S. crypto bank with an OCC national trust bank charter, has submitted a primary account application that is currently pending review. If Anchorage is also approved, the precedent will shift from "Wyoming SPDI" to "OCC Federal Charter Bank," marking another significant milestone.

The court's ruling is very clear, the Fed has discretion and can approve or deny, the law does not require it to be impartial. What can be replicated is the application process, what cannot be replicated is the political context. The room did exist, the door was indeed open. It's just that the hand that opened this door is not a rule, it's the prevailing wind.