Lorenzo Letter #08: Kraken Secures Fed Master Account
Welcome to the Lorenzo Letter, your weekly update on stablecoins, DeFi, tokenization, crypto legislation, and more.
In This Issue:
- Kraken Secures Federal Reserve Master Account
- Trump Backs Crypto Industry in Stablecoin Yield Dispute
- Citi Accelerates Bitcoin Custody Push
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Kraken Secures Federal Reserve Master Account
Kraken has become the first crypto-native firm to obtain a Federal Reserve master account, giving its banking subsidiary direct access to U.S. payment infrastructure and marking a milestone in crypto’s integration with traditional finance.
It allows the firm to connect directly to key settlement systems such as Fedwire, enabling U.S. dollar transfers without relying on intermediary banks.
While the approval opens the door to direct participation in federal payment rails, the access comes with limitations. Kraken will not earn interest on balances held at the Fed and will not be eligible for central bank lending facilities. Even with those restrictions, the decision is widely viewed as a symbolic breakthrough, demonstrating a potential pathway for digital asset firms to connect with the core infrastructure of the U.S. financial system.
“This milestone marks the convergence of crypto infrastructure and sovereign financial rails,” said Arjun Sethi, co-CEO of Kraken and its parent company, Payward. He added that the approval allows the firm to operate as a directly connected financial institution rather than relying on correspondent banking relationships.
The development also comes as Kraken explores a potential public listing, with parent company Payward reportedly submitting confidential IPO paperwork to the U.S. Securities and Exchange Commission. Direct access to the Federal Reserve’s settlement network could strengthen Kraken’s positioning as a hybrid crypto-financial institution as it prepares for the public markets.
Full Story:
Bart Hillerich
Trump Backs Crypto Industry in Stablecoin Yield Dispute
President Donald Trump has publicly sided with the crypto industry in its dispute with U.S. banks over stablecoin yield, increasing pressure on lawmakers to advance pending digital asset legislation.
In a post on Truth Social, Trump urged banks to reach a compromise with crypto firms, framing the issue as one that benefits consumers and strengthens the U.S. financial system.
“The Genius Act is being threatened and undermined by the Banks, and that is unacceptable,” Trump wrote. “They need to make a good deal with the Crypto Industry because that’s what’s in best interest of the American People.”
The disagreement centers on whether stablecoin issuers should be allowed to offer yield-like rewards to users. Banks argue that allowing such incentives could transform stablecoins into direct competitors to deposit accounts, potentially triggering large-scale outflows from the banking system. Some industry estimates suggest banks could lose trillions in deposits if yield-bearing stablecoins gain widespread adoption.
Bart Hillerich
The White House has hosted multiple meetings between banking and crypto leaders in an attempt to broker a compromise, but negotiations have so far failed to produce an agreement. Trump’s public intervention signals that stablecoin policy is emerging as a key battleground in the broader effort to define how digital assets integrate with the U.S. financial system.
Full Story:
Bart Hillerich
Citi Accelerates Bitcoin Custody Push
Citigroup is expanding its digital asset strategy with plans to launch institutional bitcoin custody later this year, aiming to make bitcoin “bankable” by allowing clients to hold the asset within the same safekeeping accounts used for traditional holdings such as securities and cash.
Under the proposed model, institutions could manage bitcoin exposure through familiar financial workflows while Citi handles key management, custody, settlement, and reporting behind the scenes.
According to the bank’s digital asset custody leadership, the initiative is largely driven by client demand. Institutional investors increasingly want regulated crypto exposure but prefer to avoid managing private keys or specialized crypto infrastructure themselves.
Citi’s longer-term vision extends beyond custody. The firm is:
- Developing unified account structures capable of holding multiple asset classes within a single balance sheet.
- Adapting its infrastructure for the 24/7 nature of blockchain markets.
- Building Citi Token Services, a permissioned blockchain network that enables round-the-clock internal money movement.
Citi’s push comes amid a broader shift across Wall Street as financial institutions explore tokenized markets and continuous trading models, reflecting growing institutional demand for digital assets and the gradual convergence of crypto infrastructure with traditional finance.
Full Story:
Bart Hillerich
