Kraken First will be a US crypto bank. Here white it matters

In short

  • Wyoming granted Kraken a license to become a special purpose depository institution in the state.
  • The bank should launch sometime by 2021.
  • Kraken Financial will be able to provide certain banking services, including crypto debit cards, but cannot use customer deposits to make loans.

The line between the crypto exchange and the bank only got blurred. Today, the state of Wyoming granted the crypto exchange Kraken a license to create a crypto bank in the state, which it is calling Kraken Financial.

This makes Kraken the first American crypto exchange to bank. Specifically a “Special Purpose Depository Institution”, meaning that Kraken can hold custody over digital assets, operate payment systems, and allow customers to easily switch between Fiat and crypto.

Kraken Financial’s customers, currently limited to US residents – and no New Yorkers can pay the bill and receive salaries in cryptocurrencies, as well as hold cryptocurrencies with the bank, once the bank launches . Kraken Financial CEO David Kinsky told Decrypt The bank hopes to launch it later this year, but most likely at the beginning of it [the first quarter of] 2021 “

Kraken intends to introduce new services in the next few years, between crypto debit cards and stacking services.

The license comes with some limitations: Kraken Financial will be a so-called “custody bank”, meaning it is not allowed to issue loans using customer deposits; Wyoming law requires Kraken to maintain its customers’ reserves at all times.

“Right now, we are prohibited from lending on behalf of the US dollar,” Kintsky said. “There are certain provisions in the law that enable us to facilitate customer-directed lending of digital assets. And so we hope to conduct That Type of lending activity, ”he said, but Kraken has no plans to offer partial reserve lending.

So, how does it make its money? “It’s very traditional,” Kintsky said. He said Treasury securities and other assets yield, although “US dollar-denominated yields are not so tremendous” right now.

In addition, Kraken will deduct cryptos deposited in its account and charge fixed fees for services, such as wire and bank-to-bank transactions. “They are the standard mechanism for making money out of lending to banks,” he said. Then: “New products; Qualified custody; Money management [and] There will also be new streams of revenue in other types of asset classes. But to begin with, it is going to be a very standard banking commercial model. “

Kraken, through its new bank, will also remove its dependence on third-party banking infrastructure. Is this a cost-cutting measure? “Yes, possibly,” he said. “we will see.”

This is relevant because the license will allow Kraken to apply for an account in the Federal Reserve. Kraken’s legal head, Marco Santori, said, “It can also seek membership.” “It also brings with it responsibilities, as well as monitoring the Fed. It is a powerful tool, and I expect it to be very rigorous for all applicants. “

But it potentially has the added bonus of giving Kraken direct access to the Fed. And if that happens, “in theory, they don’t need to rely on other banks in favor of their business,” explained Nick Carter, a partner at Castle Island Ventures. While Kraken still has a long way to go before it gets there, it can ultimately “provide those fiat banking services directly, which is a clear value. [proposition],” They told Decrypt.

Santori reported earlier today that the move could also bridge the gap between traditional and crypto finance. “A crypto-focused bank will allow an efficient, transparent and responsible nexus between the traditional financial system and the crypto ecosystem,” he said.

Katlin Long, a member of Wyoming’s Blockchain Select Committee, said in a tweet that the vote in favor of the license was “unanimous” and the process took 27 months.

A few months ago, the idea of ​​cryptocurrency companies becoming banks was made clear in a public letter from the United States Office of July, an independent bureau within the US treasury that said national banks are capable of holding on cryptocurrencies. Custody.

But it was Wyoming’s staunch crypto-friendly approach that actually paved the way for crypto banks to take form and according to Carter it was no small feat.

“It matters because Wyoming’s laws clarify the relationship between depositors and institutions in a certain legal way, which was not really clear before,” he said. For example, it was not at all clear whether the client would be claimable by creditors in the deposit liquidation situation. The SPDI law clearly establishes that difference. “

But the main contribution, he said, was “establishing Wyoming as a crypto-friendly jurisdiction and making some important legal explanations around the nature of crypto collateral, which I hope other states will adopt as well.”