Crypto Bank Kraken Financial Is the First Digital Bank to Receive a Federal Reserve Master Account

Kraken Financial, a Wyoming-based special-purpose depository institution operated by Payward Inc., has become the first digital bank to get a Federal Reserve master account.

With the account, Kraken will be able to settle transactions directly on core payment rails in the United States, such as Fedwire, the Federal Reserve’s real-time gross settlement platform, without relying on intermediary banks.

A Federal Reserve master account will integrate regulated-fiat currency liquidity directly into digital-asset markets, the company says. As a result, Kraken Financial will have the foundation to enable atomic settlement between fiat and cryptocurrency. Atomic settlement enables the exchange of fiat currency for digital assets in real time and guarantees both legs of the transaction settle instantly or not at all.

A Federal Reserve master account will also enable Kraken Financial to provide institutional-grade cash management integrated with digital-asset custody and programmable financial products built within a fully regulated framework, the company says.

Kraken Financial’s grant of a Federal Reserve master account is a “watershed” moment for the payments industry, Eric Grover, principal at Intrepid Ventures, says by email. “For many years, the central bank actively defended its perimeter, keeping crypto-native firms locked out of core U.S. dollar plumbing,” he says. “Kraken Financial can now atomically settle transfers directly through central banks rails rather than through commercial banks. This also establishes a template and precedent [for] how crypto-native firms can be integrated into the traditional financial system.”

Kraken Financial will begin with a phased rollout, initially focused on facilitating institutional client activity at Kraken. Capabilities will be integrated into Payward’s broader infrastructure over time, in close coordination with regulators, the company says. 

“With a Federal Reserve master account, we can operate not as a peripheral participant in the U.S. banking system, but as a directly connected financial institution,” Arjun Sethi, co-chief executive of Payward and Kraken Financial, says in a statement. “This is what it looks like when crypto infrastructure matures into core financial infrastructure.”