Original author: Oluwapelumi Adejumo

Original translation: Chopper, Foresight News

Kraken has crossed a regulatory hurdle in the cryptocurrency industry: direct access to the Federal Reserve's core payment infrastructure.

On March 4, Kraken announced that its bank, Kraken Financial, registered in Wyoming, has obtained eligibility for a Federal Reserve master account. This means it can complete dollar settlements directly through the Federal Reserve system without needing to go through partner banks.

The Federal Reserve confirmed that this crypto company’s bank has been approved as a third-class institution, allowed to open a limited-purpose account with an initial term of one year.

This approval provides a tangible reference case for the entire crypto assets industry on how crypto companies can access the U.S. payment system more directly.

This milestone coincides with the Federal Reserve defining a narrower central bank entry model, allowing some institutions to access core settlement systems while not granting them all the privileges and benefits of a traditional Federal Reserve account.

Jeff Schmid, President of the Kansas City Fed, stated: “We know that the payment landscape is actively evolving. In this transformation, the integrity and stability of the U.S. payment system remain our top priority.”

This is why this decision is not just about one cryptocurrency company.

The account approved for Kraken is essentially an early reality test of a new model focused on payments that Washington policymakers have long discussed: separating access to settlement rights from the broader public safety net tied to the banking system.

A Pilot in a Larger Policy Shift

For decades, the Federal Reserve master account has been the gateway for central bank monetary settlements, providing finality and irreversibility, and is highly sought after by large financial institutions.

This status makes it one of the most important access privileges within the U.S. financial system.

However, in recent years, new types of licenses such as Wyoming's Special Purpose Depository Institutions (SPDI) and fintech bank models have compelled regulators to engage in deeper discussions: Should non-traditional institutions be allowed direct access to the Federal Reserve's settlements? If so, to what extent should the privileges be granted?

The Federal Reserve's answer is to move toward a narrower framework rather than a full relaxation of access.

In December 2025, the Federal Reserve publicly sought feedback on a prototype "payment account." This concept differs from a full master account and only authorizes the use of certain payment services.

Under this scheme, the Federal Reserve would offer a very restrictive lending program with no interest payments. Borrowers would be unable to use the discount window, would have no access to intraday credit, and the account would include built-in controls to prevent overdrafts.

This prototype plan will also set a cap on overnight balances, either $500 million or 10% of total assets, whichever is lower. Services will be limited to certain settlement channels, including the Fedwire Funds Service and FedNow, while other channels (such as FedACH) are excluded.

This design reflects the core regulatory goal: to retain the efficiency of direct settlement while limiting the routes non-traditional institutions can access the central bank's safety net.

Federal Reserve Governor Christopher Waller has publicly stated that the simplified payment accounts should be implemented by the end of 2026. This indicates that the Federal Reserve is contemplating how to modernize payment channels without triggering similar risk expansions comparable to shadow banking.

Kraken's approval perfectly aligns with this policy background. Even though nominally a master account, the one-year, limited-use structure makes it more of a controlled policy experiment rather than a fully open access situation.

Why Do Crypto Companies Care About Direct Settlement?

For the vast majority of cryptocurrency companies, U.S. dollar payments still rely on a few partner banks for financial system access.

This structure has inherent weaknesses: if a partner bank changes its risk appetite, faces regulatory pressures, or decides to reduce exposure to crypto customers, even with strong user demand, exchanges and stablecoin companies may quickly lose key payment channels.

Such events have repeatedly occurred in the industry, especially during periods of tighter regulation or banking pressures. The result is that many crypto enterprises remain highly dependent on intermediaries for the most basic flows of dollars.

Direct settlement can significantly reduce this dependency.

For Kraken, accessing the Federal Reserve system can enhance the speed, stability, and predictability of dollar payments, reduce friction through partner banks, and give the company stronger control over user experience segments that are highly vulnerable to external shocks.

Kraken co-CEO Arjun Sethi stated: “This framework allows for atomic settlement between fiat currency and cryptocurrency, integrates institutional cash management with digital asset custody, and constructs programmable financial products within a fully regulated environment. This is what happens when crypto infrastructure grows into core financial infrastructure.”

For the entire industry, this development may introduce a new differentiation.

Companies able to meet banking standards in regulation, governance, and oversight may be able to internalize more of the payment technology stack.

However, other companies unable to do so may continue to rely on partner banks, remaining constrained by the bottlenecks of the U.S. crypto banking industry.

At the same time, Kraken's path also demonstrates that regulation itself can become a competitive advantage.

The company gained access through Wyoming's SPDI license. This license requires full reserves and does not permit traditional fractional reserve banking practices where customers' fiat deposits are loaned out.

This structure lowers the maturity mismatch and run risks typical of traditional banks, making it easier for regulators to assess and accept.

But this also raises the entry barrier: most crypto companies may not choose the banking license route; even if they do, it does not guarantee they will obtain direct access qualification with the Federal Reserve.

Three Possible Directions for the Future

The Federal Reserve has made it clear that its "payment account" prototype will not change statutory entry requirements. This means that the scenario of ordinary fintech companies suddenly gaining full direct access to the central bank is essentially impossible.

More realistically, there are three narrower paths:

• Kraken becomes an outlier: the Federal Reserve treats it as a closed test, observing risk control and operational status, and may cautiously slow down or pause subsequent approvals due to regulatory or political considerations.
• A small group of qualified institutions emerges: a few crypto custody banks, trust banks, and niche payment-focused institutions could obtain similar qualifications if they meet banking governance and compliance standards. The bottleneck with partner banks would alleviate but would be limited to those willing and able to enter a strong regulatory framework.
• Standardization after 2026: if the Federal Reserve formally launches payment accounts as planned, the "limited to payments" access tier would become a more stable option, but still only for institutions that meet extremely high compliance standards.

What Should the Crypto Industry Focus on?

The next phase of focus should no longer be on approvals but on actual operational results.

For Kraken, the primary question is whether this limited-use, one-year approval can be renewed. The secondary concern is whether the scope of the account will ultimately align more clearly with the limited payment framework the Federal Reserve is forming or exceed that framework.

For the industry, the key issue is whether this model can be replicated. If other specialized or narrowly-chartered institutions gain similar access, it would indicate that the Federal Reserve is preparing to move from individual cases to a systematic approach.

This is the true significance of Kraken's recent approval: it is not only a milestone for an exchange nearing the center of the dollar system but also a policy experiment concerning the future design of payment access in the U.S.

If it operates smoothly and meets regulatory requirements, it will strongly support the idea of "allowing a small class of regulated, payment-focused institutions to access the Federal Reserve more directly." If it does not go well, it will reinforce the stance that "central bank access should be strictly tied to traditional banks."

Regardless, the issue that cryptocurrency companies have debated for years is no longer an abstract concept but is being tested within the U.S. payment system.

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