In October 2020, Kraken submitted an application for a master account to the Federal Reserve. At that time, DeFi summer had just passed, NFTs had not exploded yet, FTX was still one of the most trusted trading platforms 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, its founder is in prison, and the entire industry experienced a bear market that almost wiped everyone out. The SEC sued Coinbase, sued Binance, and widely brandished the stick of "crypto is a security." Then Trump won the election, the SEC chairman changed, and enforcement direction made a 180-degree turn.
By March of this year, the Kansas City Fed approved Kraken's application. This cryptocurrency trading platform, with an annual revenue of $1.5 billion and aiming for an IPO, finally secured 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 Federal Reserve payment system; every dollar in and out must be intermediated by traditional banks that hold master accounts. This is not a regulatory restriction but an infrastructure-level isolation. Crypto companies use the currency of private banks, not the currency of central banks, and there has always been an intermediary between the two.
The risk of this intermediary was completely exposed in 2023. Silvergate and Signature banks collapsed one after another, two banks that specialized in serving the crypto industry disappeared overnight, throwing the dollar channels of the entire industry into chaos, trading platforms were unable to process deposits and withdrawals normally, stablecoins became unpegged, and liquidity for some institutions was directly cut off. That crisis made the entire industry realize one thing: relying on corresponding banks means handing over one's lifeline to others.
The master account solves this problem. Holding a master account means direct access to Fedwire, which is the Federal Reserve's interbank real-time gross settlement system, established in 1913, and is the most fundamental clearing track in the US financial system. Every working day, Fedwire processes hundreds of trillions of dollars, handling corporate mergers, government securities settlements, and interbank borrowing—all through this channel.
JPMorgan, Bank of America, Wells Fargo— all licensed banks in the US settle with each other through Fedwire using central bank money, not the liabilities of private banks. This system has only been open to a certain type of institution for over a hundred years: traditional banks under federal supervision. Kraken is now inside it.
What will happen after entering this door? A recent case is Square.
In 2020, it obtained an industrial loan company license (ILC) from the state of Utah, which essentially also allowed it to enter the Fed payment system. Before this, Square's lending product, Square Capital, had to be issued through partner banks that set conditions, charged fees, and determined loan limits, thus constraining Square's pricing power and product design.
After obtaining the license, Square fully moved its lending business into its own Square Financial Services, internalizing everything from funding sources to risk control and pricing. Within a year, the loan interest rates and disbursement speeds for small and micro businesses showed visible changes. The financial product line of Cash App then rapidly expanded, with direct deposits, stock trading, and Bitcoin buying and selling, growing into a complete retail financial chain from a P2P transfer tool.
Kraken's logic follows the same path. When institutional clients deposit dollars into Kraken, it previously needed to clear through corresponding banks, incurring both time delays and costs. After connecting directly to Fedwire, Kraken can autonomously handle fiat currency settlement, fundamentally reducing the friction cost for large deposits and withdrawals.
More importantly, the master account qualifies Kraken to provide settlement services endorsed by the Fed for institutional clients, no longer being "a crypto trading platform that survives on bank tolerance." These two phrases mean significantly different things for institutional capital.
What Was Gained After Five and a Half Years?
The type of account Kraken received is referred to in the industry as a Skinny Account. They got in the door, but a significant portion of permissions has been cut off. There is no discount window, no interest on excess reserves, and no intraday overdraft limits. These are tools that traditional banks use to manage liquidity and earn passive income, none of which Kraken obtained.
This set of restrictions was not temporarily invented by the Federal Reserve for Kraken. In December 2025, the Federal Reserve published a draft for public comment regarding "skinny accounts," which is what the framework looks like: you can access the payment track, but don’t expect full bank treatment. Kraken's account is the first to be approved before this logic was implemented, ahead of the framework itself.
Additionally, Kraken's review tier is also Tier 3, the strictest classification in the Federal Reserve's three-tier framework. Tier 1 is traditional banks with federal deposit insurance; Tier 2 includes institutions without deposit insurance but under federal prudential supervision; Tier 3 encompasses all others that don't fit either category, including crypto banks, payment innovation companies, or any entities trying to connect to the Fed through non-traditional paths. The Fed is completely unfamiliar with you; you have to prove yourself first, and the review principles for this tier are straightforward and harsh.
There are very few things approved under Tier 3. In all the years this framework has existed, almost nothing has been approved. Applications hang there with no clear timetable and no predictable outcomes. Kraken's application itself was not special; what is remarkable is that the group handling the approval process changed after five and a half years.
The account initially serves only institutional clients, with retail not currently involved, as Kraken's own announcement clearly states. Ordinary users will not feel any changes for the time being.
On the institutional client side, it is another story.
In mid-2025, Kraken launched Kraken Prime, targeting hedge funds, asset management companies, and large corporations that operate with tens to hundreds of millions in dollar transactions daily. Before direct connection to Fedwire, these funds had to be routed through corresponding banks, which had operating hours, approval queues, and their own compliance judgments, and could be directly blocked in special circumstances. During the days when Silvergate collapsed in 2023, large funds in the industry were effectively cut off.
After direct connection to Fedwire, the settlement chain has one less link. When hedge funds transfer large dollar positions to Kraken, it follows the Federal Reserve's payment track, with real-time settlement that is irrevocable and not subject to the operating hours or 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; once stable direct connections to Fedwire are established, T+0 real-time settlement will be the natural next step. The crypto market runs 24 hours but fiat settlement is constrained by weekday operating times. Once this dislocation 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 strives to become "the first financial institution with direct access to the Federal Reserve." This also adds more reasonableness to its $20 billion valuation.
How Was the Door Opened?
In December 2025, the Federal Reserve published a draft for public comment on "skinny accounts," soliciting feedback with a deadline of February 2026. This is a preliminary procedure for formally establishing the framework: first asking the public, then setting the rules, and then approving.
As soon as the comment period closed in February, the Kansas City Fed approved the account for Kraken in March. The rules were not yet finalized; the approval was granted first.
This triggered immense dissatisfaction in the banking industry. The three major bank lobbying groups jointly voiced their concerns, and the statement from the Bank Policy Institute (BPI) was very direct, criticizing that approvals were issued before the framework was finalized and disregarding the public comments solicited by the Fed, and the entire approval process lacked any transparency. Institutions not protected by federal deposit insurance inherently pose higher risks to the payment system, and this approval did not include any public risk assessments nor explain why it was expedited. The American Bankers Association and the Independent Community Bankers of America followed suit.
The focus of their opposition was not that "crypto companies should not come in," but that "case-by-case approvals bypassing rulemaking" is the real issue. Todd Baker, a scholar from Columbia University, directly criticized that the Fed kept the specific restrictions imposed on Kraken confidential under the guise of "commercial secrets," and approval decisions by government agencies should not be opaque.
Another similar case was Custodia Bank. In January 2023, the Fed rejected its application, citing that "the crypto business model poses an inappropriate risk to the Fed's payment system." Custodia subsequently sued, taking the case all the way to the Tenth Circuit Court of Appeals, but the court unanimously upheld the original ruling, and Custodia lost.
The same state, the same type of institution, applying to the same Fed at the same time. Custodia was rejected, while Kraken was approved.
The key difference between these two cases is not that Kraken's compliance standards are higher. Custodia has equally invested in compliance; its founder, Caitlin Long, has a Wall Street background and contributed greatly to the SPDI legislation process 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, the Fed imposed strict scrutiny on crypto institutions. Kraken's application was reviewed during Trump's second term, where the SEC chair had changed, SAB 121 had been abolished, and the White House publicly declared its intention to make the US "the global crypto capital."
Similar applications under different political backgrounds yielded different results. It highlights one fact: this door wasn't opened by the rules; it was opened by politics. Politics can open a door, but it can also close it again.
Senator Lummis wrote in the approval statement, "We look forward to resolving other pending applications in the coming weeks." Anchorage Digital Bank, the only crypto bank in the US holding an OCC national trust bank charter, has also submitted an application for a master account, which is currently under review. If Anchorage is also approved, the precedent will expand from "Wyoming SPDI" to "OCC federally chartered banks," marking another significant breakthrough.
The court's ruling makes it clear that the Fed has discretion; it can approve or not approve, 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. But the hand that opened this door was not the rules, but the political winds.
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