Kraken Crypto Exchange To Disrupt Traditional Banking With The Launch Of Its Own Digital Asset Bank – Here’s What You Need To Know
Large crypto exchange Kraken finally puts its feet in the banking waters with the new Kraken Bank.
“We are building a better form of crypto and bitcoin banking for our customers,” the exchange said on its website. The Wyoming, US-based bank is called Kraken Financial, but “due to overwhelming demand, it will be known as Kraken Bank,” it said.
It claims that Kraken Bank is designed for crypto, via the Wyoming Special Purpose Depository Institution (SPDI) framework intended to enable the bank to prioritize the custody and safekeeping of assets.
It stated that,
“We are looking at products such as USD deposit accounts and cryptoassets (ex. Bitcoin), multiple financing and payment options, institutional custody products (qualified custody for advisors and broker-dealers), IRAs and many more.”
Furthermore, it claims that it can maintain strict regulatory oversight, security standards and data protection, and argues that
“We’re willing to bet we’re more secure than your current bank.”
Kraken stated that all SPDI banks must maintain full reserves, meaning user money cannot be lent out without user permission. In its FAQ, the exchange further explained that an SPDI is a bank that is supervised by Wyoming Department of Banking.
The investments will not be insured by Federal Deposit Insurance Corporation (FDIC), but all assets would be available as cash or the least risky, most liquid cash equivalents, meaning there would not be an insolvency risk the FDIC is meant to protect, it argued.
“We will also maintain significant capital reserves and excess of our own capital to cover the full balance of all customers, even in the event of a ‘bank run'”, the company said.
The first among the SPDI licenses
This move is possible because Wyoming, USA, granted Kraken a license to create a special purpose depository institution in that state. The exchange stated that
“We are the first (ever) crypto company to be awarded a US State Bank Charter.”
Marco Santori, Chief Legal Officer of Kraken, noted the exchange’s bank charter application in September 2020. “Kraken has just won approval to create America’s first crypto bank,” he so at the time.
Then on Monday, the exchange said that Kraken Bank is not open yet, but is on its way. The company plans to have a gradual rollout, adding that:
“We will initially focus on launching services in the US to existing customers in the US, with potential international expansion in the future.”
It will be an online-only mobile device service, without any in-person activities.
Kraken further promises to promote digital asset adoption and improved customer experience through its bank via “a more seamless” integration between crypto and the traditional financial system.
Silvergate
It’s very important to note that this follows a (seemingly endless) string of crypto companies that crash and/or face major financial, legal and regulatory problems – perhaps most notably for this story, the crypto bank Silvergate.
In early February, Silvergate shares saw a sharp drop in pre-market trading following news that US officials had launched an investigation into their dealings with the fallen crypto giant FTX and its parent company Alameda Research.
Silvergate was among the lenders hardest hit by the FTX fall, suffering a bank run and having to sell $5.2 billion in debt securities at a significant loss to cover about $8.1 billion in user withdrawals. As a result, it incurred a loss of $718 million, which reportedly exceeded the bank’s total profit since 2013.
And just last week, Silvergate announced that it was unable to submit its annual financial report to the United States The Security and Exchange Commission (SEC) in a timely manner and that it assesses its ability to remain in business.
It was reported shortly after Silvergate was forced to return $9.85 million to the crypto lender BlockFi as part of the ongoing bankruptcy proceedings.
For its part, Kraken assured users that there is nothing to worry about regarding the Silvergate exposure.
Besides Kraken, several other crypto companies, including Coin base, Paxosand Galaxy Digitalended its relationship with Silvergate last week.
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Learn more:
– Crypto exchange Kraken in hot water with SEC over alleged securities violations – here’s what you need to know
– Kraken Crypto Exchange Cuts 30% of Workforce, Binance CEO Indirectly Tweets
– MicroStrategy claims minimal exposure as Crypto.com, Coinbase and Gemini pause transactions with Silvergate Bank – What’s happening?
– Silvergate in trouble: Crypto Bank cuts staff by 40% due to 68% drop in crypto deposits
– Why it’s risky to leave your cryptocurrency in exchange
– How to buy Bitcoin in USA?
