Original author: Oluwapelumi Adejumo
Original translation by Chopper, Foresight News
Kraken has overcome a regulatory hurdle that has plagued the crypto industry for years: direct access to the Federal Reserve's core payment infrastructure.
On March 4, Kraken announced that its Wyoming-registered bank, Kraken Financial, had obtained Federal Reserve master account status. This means it can directly complete dollar settlements through the Federal Reserve system, eliminating the need for intermediaries through partner banks.
The Federal Reserve confirmed that the bank affiliated with the crypto company has been approved as a Category 3 institution to open a limited-use account for an initial period of one year.
This approval provides a real-world example for the entire crypto asset industry on how crypto companies can more directly access the US payment system.
This juncture also coincides with the Federal Reserve defining a narrower central bank access model, allowing some institutions access to the core settlement system but not granting them the full permissions and benefits of traditional Federal Reserve accounts.
Kansas City Federal Reserve President Jeff Schmid stated, "We know that the payments landscape is evolving positively. Throughout this transformation, the integrity and stability of the U.S. payments system remains our top priority."
This is why this decision is not just about a cryptocurrency company.
Kraken's newly approved account is essentially an early reality test of a new payment-centric model that Washington policymakers have been discussing for a long time: separating settlement access from the broader public safety net tied to the banking system.
Pilot in a larger policy shift
For decades, the Federal Reserve’s main account has been the gateway for central bank monetary settlements, and its finality and irrevocability are coveted by large financial institutions.
This status makes it one of the most important access permissions in the US financial system.
However, in recent years, new licenses such as Wyoming's Special Purpose Depository Institution (SPDI) and models similar to fintech banks have forced regulators to engage in deeper discussions: Should non-traditional institutions settle directly with the Federal Reserve? If so, to what extent should such authority be granted?
The Federal Reserve's answer is to move towards a narrower framework, rather than a complete liberalization.
In December 2025, the Federal Reserve publicly solicited opinions on a prototype of a "payment account." This concept differs from a full master account, authorizing only the use of certain payment services.
Under this plan, the Federal Reserve will provide a very restrictive lending program that pays no interest. Borrowers will be unable to use the discount window, obtain intraday credit, and their accounts will have built-in controls to prevent overdrafts.
The prototype will also set an overnight balance cap of $500 million or 10% of total assets, whichever is lower. Service will be limited to certain settlement channels, including Fedwire Funds and FedNow, while other channels, such as FedACH, will be excluded.
This design reflects the core regulatory objective: to limit access to the central bank's safety net for non-traditional institutions while preserving the efficiency of direct settlement.
Federal Reserve Governor Christopher Waller has publicly stated that a simplified payment account should be implemented by the end of 2026. This indicates that the Federal Reserve is considering how to modernize payment channels without triggering a similar expansion of shadow banking risks.
Kraken's approval perfectly aligns with this policy context. Even though it is nominally a master account, its one-year, limited-use structure makes it more like a controlled policy experiment than a fully open market.
Why are crypto companies so keen on direct settlement?
For the vast majority of crypto companies, dollar payments still rely on a few partner banks to provide access to the financial system.
This structure has an inherent weakness: if the partner bank changes its risk appetite, faces regulatory pressure, or decides to reduce its exposure to crypto customers, even if user demand is strong, exchanges and stablecoin companies may instantly lose key payment channels.
Such incidents occur repeatedly within the industry, especially during periods of tightened regulation or pressure on banks. The result is that many crypto companies remain highly reliant on intermediaries for even the most basic dollar transactions.
Direct settlement can significantly reduce this reliance.
For Kraken, access to the Federal Reserve system can improve the speed, stability, and predictability of dollar payments, reduce friction from intermediaries through partner banks, and give the company greater control over user experience aspects that are highly susceptible to external shocks.
Kraken co-CEO Arjun Sethi stated, "This architecture enables atomic settlement between fiat and cryptocurrency, integrates institutional-grade cash management with digital asset custody, and builds programmable financial products within a fully regulated framework. This is what crypto infrastructure looks like as it grows into core financial infrastructure."
For the industry as a whole, this development may introduce a new differentiation.
Companies that can meet the standards of banks in terms of regulation, governance, and oversight may be able to internalize more of their payment technology stack.
However, other companies that cannot do this may still rely on partner banks and remain constrained by the bottlenecks of the US crypto banking industry.
At the same time, Kraken's path also proves that regulation itself can be a competitive advantage.
The company obtained its license through the Wyoming SPDI (Special Purpose Disclosure and Disclosure Authority) license. This license requires full reserves and does not allow lending of customers' fiat currency deposits like traditional fractional-reserve banks.
This structure reduces the maturity mismatch and bank run risks of traditional banks, making it easier for regulators to assess and accept.
However, this also raises the bar: most crypto companies may not pursue a banking license; and even if they do, it doesn't guarantee they'll get direct access to the Federal Reserve.
Three possible future directions
The Federal Reserve has made it clear that its "payment account" prototype will not change the statutory entry requirements. This means that the scenario of ordinary fintech companies suddenly and universally connecting directly to the central bank is highly unlikely.
More realistically, there are three narrower paths:
- Kraken became an isolated case: the Federal Reserve used it as a closed test to observe risk control and operation, and cautiously slowed down or suspended subsequent approvals due to regulatory or political considerations.
- A small group of qualified institutions will be formed: a few crypto custodian banks, trust banks, and narrowly defined payment-focused institutions, which will obtain similar qualifications provided they meet quasi-bank governance and compliance requirements. This will alleviate the bottleneck for partner banks, but only for companies willing and able to enter a robust regulatory framework.
- Standardization after 2026: If the Federal Reserve officially launches payment accounts as planned, the "payment-only" access tier will become a more stable option, but will still be limited to institutions that meet extremely high compliance standards.
What should the crypto industry pay the most attention to?
The focus in the next stage will no longer be on approval, but on the actual operational results.
For Kraken, the primary question is whether this limited-use, one-year approval will be renewed. The second is whether the scope of the account will ultimately more clearly align with the Federal Reserve's emerging payment-only framework, or extend beyond that framework.
For the industry, the key question is whether this model can be replicated. If other special-purpose or narrowly regulated institutions gain similar access, it would mean the Federal Reserve is preparing to move from case-by-case to a systemic approach.
This is precisely the real significance of Kraken's approval: it is not only a milestone for an exchange located close to the center of the dollar system, but also a policy experiment concerning the design of future payment access in the United States.
If the process runs smoothly and complies with regulatory requirements, it will strongly support the idea of "allowing a small group of regulated, payment-focused institutions to have more direct access to the Federal Reserve." If it doesn't go smoothly, it will reinforce the stance that "central bank access should be strictly tied to traditional banks."
In any case, the issues that cryptocurrency companies have been debating for years are no longer abstract concepts, but are being put to the test within the US payment system.
