Kraken Becomes US Bank: HUGE News for Crypto!
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Kraken Becomes a US Bank
Wednesday morning the Wyoming Banking Board unanimously approved Kraken's application to become a Wyoming Special Purpose Depository Institution (SPDI), or as some are calling it, a "Crypto Bank".
Wyoming has led the charge with good regulation for the crypto industry. Spearheading the effort was the amazing Caitlin Long, and under her guidance Wyoming created a new kind of bank charter. It's a 100% reserve institution that can take deposits, operate payments systems, and custody crypto.
The fact that SPDIs can't have fractional reserves is important. Normal banks are considered "adequately capitalized" when they have just 8% reserves, and can even go lower before the government gets involved. They are also required to be covered by FDIC (Federal Deposit Insurance Corporation) insurance for this reason, even though FDIC would only provide up to $250,000 per depositor if there were a bank run.
SPDIs, on the other hand, are required to have 100% of assets on hand. This means that they don't have to get involved with the FDIC. FDIC is a big reason why many bank accounts for crypto businesses get shut down: FDIC deems crypto a "high risk industry", and so banks use that as a reason to deny services to people and companies involved in the industry. As Caitlin Long told me:
"This was the original impetus for creating the Special Purpose Depository Institute. The traditional banking industry was slamming doors on crypto companies right and left. What Wyoming did is say,
'Ok, FDIC insurance is optional, and we're going to make a 100% reserve requirement bank'. The competitive advantage of this is that when these new SPDIs open, the crypto world will have its own Fed Master Account. A Fed Master Account allows these crypto companies to handle their own wire transfers, they're not reliant upon a 3rd-party bank relationship, where that relationship can be yanked at any time."
Such flaky banking relationships have plagued the crypto space. Accounts for major crypto companies are shut down routinely with no notice, leading to issues with withdrawals for customers and other problems. The bank account for LBRY.com, a crypto video platform, was shut down with no notice, as was the personal account of CEO Jeremy Kauffman, and his joint family account with his wife and children.
SPDIs mean that crypto businesses can instead form relationships with crypto banks, without fear that there will be sudden shutdowns or loss of access to funds.
Kraken has just been approved to set up the world's first ever SPDI. And there are many other applicants lining up.
This will usher in a new era for cryptocurrency usage, with easier transfers between accounts and exchanges, more reliable service, and it may even lead to more crypto businesses becoming available to New York customers. The SPDI has been dubbed the "Bitlicense killer" -- When NY introduced the Bitlicense and all of its onerous requirements in 2015, there was a mass exodus of crypto companies from NY. Without a Bitlicense, businesses couldn't operate in NY, and these licenses have only ever been approved for a handful of businesses. The SPDI is a State-Chartered Bank, and as Caitlin explains:
"There is federal law that prohibits states from discriminating against other states' State-Chartered Banks."
This could be a way for more businesses to open up services to NY customers without having to get a Bitlicense. Caitlin adds a disclaimer that of course until someone goes through the process of litigating this, we won't know definitively, but it sounds very interesting.
Wyoming is currently leagues ahead of other states in terms of their clear and helpful crypto regulations, and it's being dubbed the "Delaware of Crypto". Because of this, Wyoming is set to get an influx of crypto-businesses setting up shop, with Kraken already announcing their move. Let's hope that it's not too long before other states learn by example.
I discuss in detail Kraken's new SPDI, and what this means.
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More about Wyoming's Crypto Legislation
The first interview Caitlin Long did immediately after the news of some very important crypto bills passing in Wyoming.
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