The US state of Wyoming has granted cryptocurrency exchange Kraken a license to set up a crypto bank in the state, which is temporarily called Kraken Financial.

The new license makes Kraken the first US crypto exchange to set up a bank, and to be clear, it is specifically a special purpose depository, meaning Kraken can hold cryptocurrencies, operate payment systems and allow customers to easily switch between crypto and fiat currencies.

14. 👆 btw for those who haven’t quite spent their youth as I did, hooked up to a lan, surrounded by beige boxes in someone’s suburban garage not well insulated until sunrise, this is what bonding looks like.

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– Marco Santori (@msantoriESQ) September 16, 2020

Kraken Financial users, currently limited to residents of the United States, and provided they are not New York residents, can pay bills and receive salaries in cryptocurrency, as well as the ability to hold cryptocurrency in the bank, once the new institution’s services are launched.

Mr. David Kenetsky, CEO of Kraken Financial, told about the launch date of the bank saying:

The launch of the bank is expected later this year, most likely in the beginning of the first quarter of 2021.

Kraken plans to introduce new services, including cryptocurrency debit cards, lottery and stocktaking services, over the next few years.

The license comes with some limitations, as it requires Kraken Financial to act as a so-called custodian bank, which means it is not allowed to issue loans using customer deposits, Wyoming law requires Kraken to keep all of its clients’ reserves at all times .

Kenetsky stated:

At the moment, we are prohibited from lending besides the US dollar.

There are some provisions in the platform that enable us to facilitate targeted lending to cryptocurrency clients.

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And so we expect to conduct this kind of lending activity, but Kraken has no plans for partial reserve lending.

So how does the new establishment make its money?

Kenetsky replied:

The method is very traditional.

Treasuries and other assets have yields, although the dollar-denominated yield isn’t huge at the moment.

Apart from that, Kraken will take a portion of the cryptocurrency deposited into its account and charge a flat fee for services, such as interbank transactions.

He added:

These are the standard mechanisms for banks to make money outside of lending.

New products, qualified incubators for wealth management and other types of new sources of income.

But at first, it will be a very standard banking business model.

Kraken, through its new bank, will also eliminate its reliance on third-party banking infrastructure.

Mr. Marco Santori, Head of Legal Affairs at Kraken, said in a tweet earlier yesterday:

The announcement of the new “Kraken” institution carries with it huge responsibilities, in addition to the supervision of the Federal Reserve.

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It is a powerful tool, and I hope this will become a must for all applicants.

While Nick Carter, partner at Castle Island Ventures, explained:

This has the added advantage of giving Kraken direct access to the Federal Reserve.

And if this happens in theory, they do not need to rely on other banks for the mandatory aspect of their business

While Kraken still has a long way to go before it gets there, it may offer these paper banking services directly, which is a clear value.

Santore previously explained that the move could bridge the gap between traditional finance and cryptocurrency, and said:

A crypto-focused bank will allow for an efficient, transparent and responsible relationship between the traditional financial system and the cryptocurrency ecosystem.

Caitlin Long, a member of the Wyoming blockchain aggregator Select, commented in a tweet about kraken obtaining the license, informing that the vote in favor of the license was unanimous, and that the process took 27 months.

1/ It’s official!!! you welcome in # WyomingAnd the Tweet embed!

🐙 + 🤠 = 🔥🚀🎉

what a win # encrypt & Wyoming! As of **NOW** Kraken has a US bank charter – 100% Reserve Required, Audit Required (with/ # ProofOfReserves), Custody on legal bail, no # passerby Bank type! pic.twitter.com/BO9CG8Jqoc

– Caitlin Long 🔑 (@CaitlinLong_) September 16, 2020

A few months ago, the idea that cryptocurrency companies could become banks was articulated in a public letter in July by the Office of the Comptroller of the Currency of the United States, an independent office within the US Treasury, where he said:

National banks are able to maintain custody of cryptocurrencies.

But it was Wyoming’s strong and friendly attitude to cryptocurrencies that really paved the way for the formation of crypto banks, and it was no small feat, according to Carter, who told in this regard:

This is important because the Wyoming body of laws articulates the relationships between depositors and institutions in a specific legal way, something that was not previously clear.

For example, it was not entirely clear whether customer deposits were claimable by creditors in the event of liquidation.

The SPDI Act clearly defines this distinction.

The new license obtained by “kraken” is useful for the cryptocurrency market in general, as it will clarify the laws and terms of dealing with encrypted digital currencies, which can be adopted by other countries as well.

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