Kraken became the first cryptocurrency bank in the United States. What does this mean?

Editor’s note: This article is from  Babbitt information (ID: bitcoin8btc) , Author: Jesse Powell, the compiler: Captain Hiro, the Daily Planet published with permission.

According to a Decrypt report on September 18, the boundaries between cryptocurrency exchanges and banks will become more blurred. The state of Wyoming granted the cryptocurrency exchange Kraken a license to establish a cryptocurrency bank in the state and temporarily named it Kraken Financial.

This makes Kraken the first US cryptocurrency exchange to create a bank. The bank is a “special purpose deposit institution”, which means that Kraken can custodial Crypto assets, operate the payment system, and allow customers to easily trade between fiat and cryptocurrencies.

Kraken Financial’s customers are currently limited to U.S. residents, who can use cryptocurrency to pay bills or receive salaries, and they can also hold cryptocurrency in a bank. Kraken Financial’s CEO David Kinitsky told Decrypt that the bank “expects to launch this service later this year, but the most likely time is early 2021 (the first quarter).”

Kraken also plans to launch a series of new services in the next few years, including cryptocurrency debit cards and staking services.

Of course, Kraken’s license also has some restrictions: Kraken Financial will become a so-called “custodial bank”, which means that it cannot use customer deposits to issue loans; in addition, Wyoming law requires Kraken to keep everything at all times Customer’s savings.

Kinitsky said:

We are currently prohibited from providing loans in US dollars. There are some provisions in the regulations that make it easy for us to know that customers are borrowing Crypto assets, so we expect to conduct such loan activities. But Kraken has no plans for partial reserve loans.

So, how does Kraken Financial make money? Kinitsky said that “the way to make money will be very traditional.” Although the current “yield in dollar terms is not that high”, US Treasury bonds and other assets also have yields.

In addition, Kraken will also charge a portion of the cryptocurrency fees deposited in its account, and charge a fixed fee for services such as wire transfers and inter-bank transactions.

He says:

This is a very standard mechanism for banks to make money outside of lending business. New products, qualified custody, wealth management and other types of asset classes will also have new income. But at the beginning, it will be a very standard bank business model.

Krahen, through its new bank, will also get rid of its dependence on third-party banking infrastructure. Is this to cut costs? Kinitsky said, “Yes, it’s possible. Let’s watch while walking.”

Getting the permit will allow Kraken to apply for an account with the Federal Reserve. Marco Santori, Krahen’s legal director, tweeted earlier today:

It can even apply for membership, which brings heavier responsibilities and oversight by the Federal Reserve. This is a powerful tool, and I hope it will become an essential skill for all applicants.

But this has the added benefit of allowing Kraken to directly contact the Federal Reserve. Nic Carter, a partner at Castle Island Ventures, explained that in that case, “In theory, Krahen does not need to rely on other banks to complete their statutory business. Although Kraken still has a long way to go, it may eventually” It is a very valuable proposition to directly provide the services of those legal currency banks. “

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

He says:

Banks focusing on cryptocurrency will establish an efficient, transparent and responsible connection between the traditional financial system and the cryptocurrency ecosystem.

Caitlin Long, a member of the Wyoming Blockchain Special Committee, added on Twitter that the result of the vote was “unanimously passed” and the whole process took a total of 27 months.

A few months ago, the Office of the Comptroller of the Currency issued an open letter clarifying the idea that cryptocurrency companies will become banks and stating that the National Bank can obtain custody of cryptocurrencies.

But Wyoming’s firm stance towards cryptocurrency paved the way for the establishment of a cryptocurrency bank, and Carter said this is not a small achievement.

He says:

This is important because a series of laws in Wyoming clarify the relationship between depositors and institutions in a clear legal way, which was not very clear before. For example, in the case of liquidation, whether customer deposits can be claimed by creditors is currently unclear, and the SPDI law clearly stipulates this distinction. But he also said that the main contribution of this bill is to establish “Wyoming as a cryptocurrency-friendly jurisdiction and make some important legal clarifications on the nature of cryptocurrency collateral. I hope other states will also Will adopt.”

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