Crypto Bank CEO who applied for Fed membership explains impact

  • Caitlin Long says joining the Fed would bring significant US dollar deposit capacity to her industry.
  • One of Avanti’s settlement processes is faster than ACH payments and processes instantly.
  • She hopes that there will be movement in the coming weeks on the political front.

Every small step on the road to adoption is huge for the crypto community watching for any signs that their beloved digital assets are here to stay.

Even in the face of regulatory threats, crypto enthusiasts see each development as a step towards mainstream acceptance. It is therefore not surprising that a new crypto-friendly bank becomes a member of the

Federal Reserve
would be a headline.

Caitlin Long, a 22-year Wall Street veteran and now the founder and CEO of Avanti Bank, a Wyoming-based company that seeks to bridge the gap between digital assets and the dollar payments system, told Insider that the company had applied to become a member of the Fed and was playing the game of patience.

“We had always said that we intended to apply for membership,” Long said. “It’s a little unusual for a brand new bank to apply to become a member of the Fed, but we decided to do so.”

This move would give Avanti access to the Fed’s payment systems; in other words, to do business directly with them, and to process customer transactions faster and more cheaply without having to work with traditional banks. Avanti is not alone: ​​the Kraken crypto exchange has also requested access to the Fed’s payment system.

“So in applying for membership, we are subjecting ourselves to exactly the same rules, formally as all other banks,” Long said.

What membership would mean for payments

To be clear, Avanti does not allow bitcoin deposits, but rather digital asset custody services, similar to what State Street or BNY Mellon provide for securities.

“Right now, there are no banks that provide direct custody and access to the Federal Reserve. There are of course banks that have direct access for dollars to the Federal Reserve. And there are of course digital asset custodians, but none under the same umbrella within the same legal entity. “

This membership would mean that institutions can settle transactions simultaneously with a single counterparty, instead of having to use two different ones, which adds costs, risks and delays to the process of settling transactions on digital assets, a said Long.

“Another thing that is unique about our business plan is that we have proposed to issue a bank deposit in the form of a digital asset,” Long said. “So it would be a negotiable bank deposit, and the product is called Avit.”

Unlike an ACH payment which can take days, Long says this plan would settle through a new clearing mechanism, and process almost instantly for low cost, irreversibility, and traceability on a public blockchain.

AVIT has requested to run on Layer 2 on Bitcoin’s blockchain, known as Liquid Network, and a smart contract on the Ethereum network. Avanti’s system would be a state-of-the-art bank, which could even open the door for fund managers like hedge funds and startups that provide FinTech services, Long says.

The concerns of the banks

Currently, many banks do not serve digital asset companies. Long says one of the reasons for this is that banks don’t understand the industry and don’t have the compliance skills to serve the industry. She adds that historically, regulators have also viewed these banks as higher risk and, as a result, their FDIC insurance premiums and capital requirements are increasing.

“There are hundreds of examples, made public, of people whose bank accounts were closed because they sent money to Coinbase or Kraken and other digital asset exchanges,” Long said. . “There are banks that just have zero tolerance for working with anyone connected to digital assets.”

Other concerns about being given a direct path to the Fed include the risk of money laundering, cybersecurity and consumer protection, as well as safety and soundness, according to the Institute for Banking Policy, which represents the major banks, and the Independent Community Bankers of America. Additionally, companies like Avanti are not insured by the Federal Deposit Insurance Corporation.

Long pointed out that Avanti is a state-chartered depository institution that is subject to the same requirements as traditional banks, including annual review and compliance with the secrecy law.

“[Crypto] is a $ 2 trillion industry, and is served by a small handful of banks that together have about $ 80 billion in US dollar deposit capacity. I can’t think of another industry that’s so limited by deposits, ”Long said.

Avanti officially applied for membership in October 2020, it’s been a year now. Long hopes that there will soon be a movement towards acceptance. The delay, she says, is due to the Fed examining political questions about how to integrate digital assets into the banking system, in a safe and robust manner.

Long says regardless of the delays, they remain optimistic about getting that access. The only question is when.

She notes that the president Financial Markets Task Force to issue document on stablecoins in a few weeks, while the Fed is expected to release its Next week’s article based on research which examines the costs and benefits of a central bank digital currency.

Long believes these releases, while not directly related to his bank’s request, will provide much-needed clarity on the policy. And as a result, things that have been saved, like the Avanti app and Kranken, can start to move.

It can also give the crypto industry more voice or influence in the political arena. Long said many agencies, including the Fed, have reached out and are interested in hearing directly from the industry.

“There’s something called TBac, The Treasury Borrowing Advisory Committee, which is made up of all the big banks that help the US Treasury determine the maturity of T-bills to be issued based on market demand,” Long said.

She adds that she wouldn’t be surprised if the Fed finally sets up some sort of advisory board, which is very common in the world.

banking industry
, although she is not aware of any ongoing plans to do so.