In October 2020, Kraken submitted its application for a master account to the Federal Reserve. Back then, the DeFi summer had just ended, NFTs hadn't exploded yet, FTX was still one of the most trusted trading platforms in the industry, and the U.S. SEC was still responding to all regulatory questions with "we are still studying it."

Five and a half years later, FTX has collapsed, its founder is in prison, and the entire industry has gone through a bear market that washed out almost everyone. The SEC sued Coinbase, sued Binance, and swung the "crypto equals securities" club everywhere. Then Trump won the election, the SEC chair changed, and the enforcement direction did a 180-degree turn.

By March of this year, the Federal Reserve Bank of Kansas City approved Kraken's application. This crypto trading platform, with annual revenue of $1.5 billion and sprinting towards an IPO, finally has its own Federal Reserve master account.

The Wall Is Finally 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 did not have the qualification to directly access the Federal Reserve's payment system; every dollar in and out had to be relayed through a traditional bank holding a master account. This is not a regulatory limitation; it is an infrastructural segregation. Crypto companies use private bank money, not central bank money, always separated by a middleman.

The risk of this middleman was fully exposed in 2023. Silvergate and Signature collapsed one after another, two banks specializing in serving the crypto industry disappeared overnight, the entire industry's dollar channels fell into chaos, trading platforms couldn't process normal deposits and withdrawals, stablecoins depegged, and some institutions faced immediate liquidity ruptures. That crisis made the entire industry realize one thing: relying on correspondent banks means handing over 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, the most fundamental clearing rail in the U.S. financial system. Every business day, Fedwire handles trillions of dollars in flow; corporate M&A payments, Treasury settlements, interbank loans—all travel through this pipeline.

JPMorgan, Bank of America, Wells Fargo—all licensed U.S. banks settle with each other through Fedwire using central bank money, not private bank liabilities. For over a hundred years, this system has only been open to one type of institution: federally regulated traditional banks. Kraken is now among them.

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

In 2020, it obtained an Industrial Loan Company (ILC) charter from Utah, essentially also entering the door of the Federal Reserve payment system. Before that, Square's loan product, Square Capital, had to be issued through third-party bank partners, who set conditions, charged fees, and decided credit limits; Square's pricing power and product design space were constrained.

After obtaining the charter, Square fully integrated its lending business into its own Square Financial Services, internalizing everything from funding sources to risk control to pricing. Within a year, there were visible changes in the interest rates and disbursement speed for small business loans. Cash App's financial product line then expanded rapidly—direct deposit, stock trading, Bitcoin buying and selling—a complete retail financial chain grew out of a P2P transfer tool.

Kraken's logic is the same path. U.S. dollars deposited by institutional clients into Kraken previously required clearing through correspondent banks, with time and cost losses. After directly connecting to Fedwire, Kraken can handle fiat settlement autonomously, fundamentally reducing the cost of friction for large-value deposits and withdrawals.

More importantly, the master account qualifies Kraken to do things it couldn't do before—provide institutional clients with settlement services backed by the Federal Reserve, no longer being "a crypto trading platform surviving on the tolerance of banks." These two statements are not the same thing for institutional capital.

What Did Five and a Half Years Buy?

The type of account Kraken obtained is called a "Skinny Account" in the industry. It's in the door, but with a significant portion of permissions cut. No discount window, no interest on excess reserves, no intraday overdraft facility. These are tools traditional banks use to manage liquidity and earn passive income; Kraken got none of them.

These restrictions weren't invented by the Fed specifically for Kraken. In December 2025, the Federal Reserve released a征求意见稿 (request for comments) for "Skinny Accounts" targeting non-traditional institutions; the framework is like this—you can access the payment rail, but don't expect full banking待遇 (treatment). Kraken's account was the first approved under this logic before the framework itself was finalized.

Furthermore, Kraken's审查等级 (review tier) is also Tier 3, the strictest level in the Fed's three-tier framework. Tier 1 is traditional banks with federal deposit insurance. Tier 2 is institutions without deposit insurance but under federal prudential regulation. Tier 3 is everyone else who fits neither, including crypto banks, payment innovation companies, or any entity trying to access the Fed via non-traditional paths. The Fed is completely unfamiliar with you; you must prove yourself first. The审查原则 (review principle) for this tier is simple and brutal.

Things approved under Tier 3 are few and far between. In the years this framework has existed, almost nothing has been approved. Applications hang there, with no clear timeline, no expected outcome. Kraken's application itself wasn't special; what was special was that the people handling the审批 (approval) five and a half years later had changed.

The account initially only serves institutional clients; retail is not involved yet, as clearly stated in Kraken's own announcement. Ordinary users won't feel any change for now.

It's a different story for institutional clients.

Kraken launched Kraken Prime in mid-2025, targeting hedge funds, asset management companies, and large corporations—those institutions handling tens of millions or even hundreds of millions of dollars in fiat inflows and outflows daily. Before the Fedwire direct connection, these funds had to be relayed through correspondent banks, which have business hours, review queues, their own compliance judgments, and can directly block transactions during special periods. During the days when Silvergate collapsed in 2023, large capital flows in the industry were practically severed.

After directly connecting to Fedwire, the settlement chain loses one link. A hedge fund transferring a large U.S. dollar position to Kraken uses the Federal Reserve payment rail, real-time settlement, irrevocable, not subject to the business hours or risk control judgments of private banks. For institutions that need to precisely control the timing of funds within specific windows, this is a matter of infrastructure, not a feature update.

Looking further ahead, there's another layer. Kraken Prime is currently T+1. After the Fedwire direct connection stabilizes, T+0 real-time settlement is the natural next step. The crypto market runs 24/7; fiat settlement being stuck to business days creates a misalignment. Once this misalignment 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 trading platform," but rather becomes "the first financial institution to directly access the Federal Reserve." This also adds more rationality to its $20 billion valuation.

How Was the Door Opened?

In December 2025, the Federal Reserve released the征求意见稿 (request for comments) for "skinny accounts," soliciting public opinion with a deadline of February 2026. This is the preliminary procedure for formally establishing the framework: first ask the public, then set the rules, then approve.

The comment period closed in February; in March, the Federal Reserve Bank of Kansas City approved the account for Kraken. The rules aren't even written yet, but it was approved first.

This caused great dissatisfaction in the banking industry. Three major banking lobbying groups jointly spoke out. The Bank Policy Institute (BPI)'s statement was blunt: approving before the framework is finalized ignores the public opinion solicited by the Fed itself; the entire approval process lacks any transparency. Institutions without federal deposit insurance pose higher risks to the payment system本身 (itself); this approval neither公开 (made public) a risk assessment nor explained why it was pushed forward提前 (ahead of schedule). The American Bankers Association and the Independent Community Bankers of America followed suit.

The focus of their opposition is not that "crypto companies shouldn't come in," but the procedure itself—"using case-by-case approvals to bypass rulemaking." Columbia University scholar Todd Baker's criticism was more direct: the Fed保密 (kept confidential) the specific restrictions on Kraken citing "business secrets"; government agency approval decisions should not be opaque.

A similar case is Custodia Bank. In January 2023, the Federal Reserve rejected its application,理由是 (reasoning) "crypto business model poses undue risk to the Federal Reserve's payment system." Custodia subsequently sued, all the way to the Tenth Circuit Court of Appeals, but the court unanimously upheld the original ruling; Custodia lost.

Same state, same type of institution, applications submitted to the same Federal Reserve Bank around the same time. Custodia rejected, Kraken approved.

The key difference between these two events is not that Kraken's compliance standards were higher. Custodia's investment in compliance was毫不逊色 (not inferior at all); its founder, Caitlin Long, came from Wall Street and contributed greatly to promoting SPDI legislation in Wyoming. The difference is 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 on crypto institutions across the board. Kraken's application was reviewed during Trump's second term, the SEC chair had changed, SAB 121 had been repealed, and the White House publicly declared its intention to make the U.S. the "global crypto capital."

The 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 also close it again.

Senator Lummis wrote in the approval announcement, "look forward to resolving other pending applications in the coming weeks." Anchorage Digital Bank, the only crypto bank in the U.S. holding an OCC national trust bank charter, has submitted a master account application, currently pending. If Anchorage is also approved, the precedent expands from "Wyoming SPDI" to "OCC federal特许银行 (chartered bank)," a breakthrough of another magnitude.

The court's ruling was very clear: the Fed has discretion; it can approve, or not approve; 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 is truly entered; the door is truly open. But the hand that opened this door was not rules; it was the political wind.