Kraken Becomes America's First Cryptocurrency Bank, What Does It Mean?

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Babbitt Information (ID: bitcoin8btc)

, Author: Jesse Powell, Compiler: Captain Hiro, published with permission.

The line between cryptocurrency exchanges and banks will become even more blurred, Decrypt reported on Sept. 18. The state of Wyoming granted cryptocurrency exchange Kraken a license to establish a cryptocurrency bank in the state, tentatively naming it Kraken Financial.

This makes Kraken the first U.S. cryptocurrency exchange to create a bank. The bank is a "special purpose depository institution," which means Kraken holds custody of digital assets, operates payment systems, and allows customers to easily trade between fiat and cryptocurrencies.

Kraken Financial’s customers are currently limited to U.S. residents, who can pay bills or receive a salary in cryptocurrencies, or hold cryptocurrencies in banks. Kraken Financial CEO David Kinitsky told Decrypt that the bank “expects to launch the service later this year, but most likely early 2021 (Q1).”

Kraken also intends to launch a series of new services in the coming years, including a cryptocurrency debit card and staking services.

Of course, Kraken's license comes with some restrictions: Kraken Financial will be a so-called "custodian bank," which means it cannot use customer deposits to make loans; customer savings.

We are currently prohibited from lending in USD. There are provisions in the regulations that allow us to know that customers are lending digital assets, so we expect this type of lending activity. But Kraken has no plans for fractional reserve loans.

He said:

So, how does Kraken Financial make money? Kinitsky said that "the way to make money will be very traditional" and that there are yields on U.S. Treasuries and other assets, although "the yields are not that high in dollar terms" right now.

Beyond that, Kraken charges a portion of the cryptocurrency deposited into its accounts and charges flat fees for services such as wire transfers and interbank transactions.

He said:

It's a pretty standard mechanism for banks to make money outside of their lending business. New products, qualified custodial, wealth management and other types of asset classes will also have new revenue streams. But at first, it will be a pretty standard banking business model.

Krahen, through its new bank, will also shed its reliance on third-party banking infrastructure. Is this done to cut costs? "Yes, it's possible, we'll see as we go," Kinitsky said."Getting the license will allow Kraken to apply for an account with the Federal Reserve. Krahen’s legal director, Marco Santori, tweeted earlier today:

But this also has the added benefit of potentially giving Kraken direct access to the Fed. Nic Carter, partner at Castle Island Ventures, explained that if that were the case,

He said:

In theory, Krahen does not need to rely on other banks for their fiat business. While Kraken still has a long way to go, it could end up “offering those fiat banking services directly, which is a valuable proposition.”

Santori explained earlier yesterday that the move will also bridge the gap between traditional and crypto finance.

He said:

Caitlin Long, a member of the Wyoming Blockchain Select Committee, added on Twitter that the vote was “unanimous,” and that the process took a total of 27 months.

He said:

A few months ago, the U.S. Office of the Comptroller of the Currency published an open letter clarifying the idea that cryptocurrency companies would become banks, stating that national banks could obtain custody of cryptocurrencies.