Last Month, Kraken made cryptocurrency history with an announcement on their blog.
The State of Wyoming, where Kraken is headquartered, approved their application to form the world’s first Special Purpose Depository Institution (SPDI), tentatively called Kraken Financial.
On their blog, Kraken stated that their vision is to become the world’s trusted bridge between the crypto economy of the future and today’s existing financial ecosystem.
An SPDI bank charter allows Kraken to build that bridge in-house. Operating as an independent bank reduces their reliance on external financial institutions, as well as launching new services for their users.
From paying bills and receiving salaries in cryptocurrency to incorporating digital assets into investment and trading portfolios, Kraken Financial will enable Kraken clients in the U.S. to bank seamlessly between digital assets and fiat currency.
Wait, but what is a Special Purpose Depository Institution?
A traditional bank safeguards its customers deposits, and lends those deposits outwards as credit.
On the other hand, a custody bank offers services that are more focused on secure deposits, and providing a safe, trusted gateway for customers to conduct transactions in regulated securities and commodities markets.
The SPDI is a custody bank but for digital assets. Both custody banks and community banks, however, are still ‘banks’ by law as they hold customer deposits.
Kraken Financial is required by law to maintain 100% reserves of its deposits of fiat currency at all times. This means that if every client were to withdraw their holdings together, Kraken Financial would be able to fulfill each withdrawal immediately without regard to how many loans were outstanding.
So, what does this mean?
Progress like this, indicates two shifts:
Cryptocurrency is becoming respectable in the eyes of the law. With that respect, comes acceptance in the mainstream and further investment.
However, traditional finance is changing to adapt to the crypto industry too: