Kraken launches its own digital asset bank following the fallout of Silvergate and Silicon Valley Bank
The past few weeks have seen tech-focused banks offering services to startups and crypto-friendly VCs run into financial difficulties. Silicon Valley Bank, the 16th largest bank in the US, collapsed last week after a run on deposits left the bank with over $2 billion shortfall. The sudden collapse sent shockwaves to thousands of startups and venture capital firms. Surprisingly, the panic was caused by the very venture capital community that SVB was created to serve and cared for.
A week earlier, Silvergate Capital, the crypto-focused bank at the center of the crypto industry crisis, also shut down its operation days after the bank liquidated its assets at a huge loss to cover over $8 billion in withdrawals amid the broader crypto market meltdown.
The collapse will have far-reaching implications on U.S. venture-backed startups and the broader tech ecosystem for many years to come. The fallout also created opportunities for a new tech and crypto-friendly bank to cater to startups, VCs, and crypto investors displaced by Silvergate and Silicon Valley Bank. Now, one crypto exchange Kraken is stepping up to the plate and making its foray into the banking industry with the launch of a bank to support users in the crypto industry.
Today, Kraken announced the launch of Kraken Bank, a digital asset bank aimed at providing banking services for digital currencies and digital asset holders. Kraken said Kraken Bank was designed for digital currencies via the Wyoming Special Purpose Depository Institution (SPDI) framework, which is meant to help the bank to put asset custody and safety first.
“We’re building a better kind of crypto & Bitcoin bank for our clients,” said the exchange on its website. The Wyoming, USA-based bank is called Kraken Financial, but “due to overwhelming demand, it will be known as Kraken Bank,” it said.
Kraken added that all SPDI banks must keep their reserves full, meaning user money cannot be lent out without user permission. In its FAQ, the exchange further explained that an SPDI is a bank overseen by the Wyoming Division of Banking.
“We’re looking into products like deposit accounts in USD and crypto assets (ex. Bitcoin), multiple funding and payments options, institutional custody products (qualified custody for advisors and broker dealers), IRAs and many more.”
In addition, the crypto exchange also claimed it can maintain strict regulatory oversight, security standards, and data protection, arguing,
“We’re willing to bet we’re more secure than your current bank.”
But unlike traditional banks, Kraken said the investments will not be insured by the Federal Deposit Insurance Corporation (FDIC), but all assets will be available as cash or the least risky, most liquid cash equivalents, meaning that there will not be an insolvency risk the FDIC is intended to safeguard.
“We will also maintain significant capital reserves and surpluses of our own capital to cover the full balance of all clients, even in the event of a bank run” said the company.
Founded in 2011 by Jesse Powell, the San Francisco-based Kraken is the 5th-largest crypto exchange by volume, with a 24-hour volume of over half a billion dollars. It provides spot and futures trading between Bitcoin, Ethereum, and over 40 other digital assets.