Thread by @CaitlinLong_

1/ "Even in the face of regulatory threats, #crypto enthusiasts see each development as a step towards mainstream acceptance. So it's no surprise that a new crypto-friendly bank becoming a member of the Federal Reserve would be a headline grab."🤠@AvantiBT
businessinsider.com/ceo-crypto-ban…

2/US banking law is confusing but @lailamaidan got it right--@AvantiBT is different--is eligible for BOTH access to Fed's payment system & to become Fed member PLUS has applied for BOTH. (OCC trust banks aren't depository institutions so aren't eligible for payment system access)

3/ I can't think of another industry that is so deposit-constrained: ~$80bn of USD bank deposits supports >$2trn in assets. Our industry has a big single point of failure risk: USD banking access. Plus there's lots of settlement risk in trad banks when they bank #crypto industry.

4/ Why? bc big differences in settlement timing & finality btwn #crypto & USD pose safety & soundness risks when trad (leveraged) banks service crypto. Payment system risk too--if a trad bank is overdrawn at the Fed + its #crypto activities trigger a run, pymt system takes a loss

5/ This is why #Wyoming #SPDI banks are structured as they are--among other reasons, they're designed to minimize payment system risk (and not to become overdrawn at the Fed), so that #crypto & USD banking can be safely & soundly connected. LOTS of details behind all this.💡

6/ Last night I saw @jimcramer talk on @CNBC abt a mega bank issuing an "honest #stablecoin"--suggesting the bank may need to issue it in a new stand-alone subsidiary (separate from its traditional deposit business). He's right but I'm not sure if he realizes the big reason why.

7/ It's true that #stablecoin-issuing banks need to be ring-fenced from trad (leveraged) banks--too much bank run + payment system risk otherwise. Vast majority of trad banks settle books & records only 1x/day but stablecoins settle in minutes w/ irreversibility. Easy to see prob

8/ And it'd ESPECIALLY be a problem if such big issues were to hit all at once at a GSIB (global systemically important bank). This is why I've said for yrs #crypto activities shld be ring-fenced in special-purpose banks (ie, stand-alone banks or ring-fenced subs of trad banks).

9/ Of course, the mega banks want the #stablecoin market all to themselves & their DC lobbyists have been attacking #crypto-native companies, trying to block all of us out (including those of us that have bank charters & agreed to be subject to the exact same rules they are).

10/ The next few weeks will tell a lot about the policy direction in the US, as @lailamaidan's story says, as the Fed's #CBDC paper & President's Working Group (#PWG) #stablecoin recommendations are on track to be released. /end