Thread by @CaitlinLong_

1/ HEY PEEPS—lots of folks asking abt @Anchorage OCC trust charter—again, congrats to Anchorage!💪👏 But OCC trust charter is narrower than #Wyoming SPDI charter. OCC trust cos can’t take deposits or directly access the Fed’s pymt system. Here’s the thread I promised. 👇

2/ Key=there’s a pecking order among types of bank charters. At the top of food chain are the mega-banks that can fund US govt. Next=banks ("depository institutions") that have direct access to the Fed’s payment system. Below them are banks & trust cos that don't have such access

3/ OCC trust cos are in the 3rd category but #Wyoming SPDIs rank above them, in the 2nd. To be eligible for direct pymt system access at Fed, the bank must be a "depository institution" (as defined in 12USC461). Wyoming SPDIs are depository institutions, but OCC trust cos aren’t.

4/ CRITICAL distinction=is it a depository institution or not? This determines eligibility for direct Fed pymt system access. It's THE key distinction. Whether a bank has a national (OCC) or a state charter isn't impt. Many of the big banks are state-chartered (they have parity).

5/ But why does direct Fed pymt system access matter? If a bank has such access, the bank has its own payment relationship w/ Fed & thus doesn’t face counterparty risk of potentially being de-banked by a 3rd party bank. Also makes many new products possible that don't exist today

6/ One example: such access enables delivery-vs-payment of #crypto vs a Fed-cleared US dollar, which is not available in the mkt now. That would solve many probs! Wouldn’t it be great if a US dollar could settle on same timing & finality as crypto?? @AvantiBT plans to offer this.

7/ Our whole industry right now depends on a v small # of banks to settle all US dollar pymts. @twobitidiot identified this as a "single point of failure risk" for the #crypto industry in @MessariCrypto's 2019 annual report. Guess what--it still is a big risk. Huge, actually.

8/ In the US, banks are regulated by state regulators &/or 3 federal regulators: the Fed, FDIC & OCC. The OCC was v supportive under Brian Brooks. But what about the Fed & FDIC? Neither has said much yet🤐. The Fed is key bc every USD transaction ultimately clears thru the Fed!

9/ To be clear, the OCC trust charter is a positive development for US #crypto. It accomplishes exactly what @Anchorage said it does—OCC trust charter means no need to face 50 state money transmission licenses + it’s a #qualifiedcustodian under SEC rules (just like SPDIs are).

10/ For #crypto custodians, those are big positives. OCC trust route is good path for cos that don’t need direct access to Fed’s payment system. For #crypto custody alone, it’s a capital-lite way to get an OCC national charter & it removes doubt about being a #qualifiedcustodian.

11/ But @AvantiBT & @krakenfx are in a different zip code—we’re pursuing something much bigger & more important for our industry: direct Fed pymt system access. That’s the US financial system’s core. The #crypto industry hasn’t made it into that core—YET! When it does, HUGE deal!

12/ The whole process of getting there is much harder than it appears tho. Many issues to resolve & I’ve been at it for a long time. What @AvantiBT is doing will help pave way for all banks to interact w/ #crypto in way that complies w/ US banking regs. Millions of little details

13/ Here's just one example. Existing #stablecoins do not comply with all US banking regulations. We’ve been in the weeds on wallet infrastructure that makes wallets reg-compatible, so that US banks & their institutional customers can actually use stablecoins. So many details

14/ .@AvantiBT is building a platform that is as “open” as any US bank’s platform legally can be. We plan API-based access to the Fed’s payment system, serving business customers of all stripes (including companies in #crypto industry), with lots of services built on top of that.

15/ Lemme close by answering a question that came up about US banks’ ability to handle security tokens, including potentially #XRP. There are subtle details here too. Banks have 11 categories of special treatment under US securities laws.

16/ But you’ve already learned not all banks are equal. So which type of banks qualify for special treatment? Answer: #Wyoming SPDIs already do. OCC trust banks do AFTER they become Fed members. The application process for Fed membership is v long. But SPDIs don't need to wait!

17/ Why? #Wyoming SPDIs already qualify for the special treatment under securities law w/o Fed membership bc they’re depository institutions under 12USC461, but an OCC trust co needs to be a Fed member in order to qualify (see 15 USC 78c(a)(6)). Sorry if all this blows ur mind🤯

18/ In sum, it’s positive that the OCC trust bank charter is now available to #crypto custodians. Congrats again to @Anchorage for being the first! Truly, that is a big accomplishment!

19/ The big cheese, though, is direct access to the Fed payment system. ONLY depository institutions are eligible for that, and two #Wyoming SPDIs already have pending applications at the Fed to be granted such access. If (when?) granted, THAT will be a v big deal!🤠