The Federal Reserve (FED), crypto assets bank and reconciliation! Operation Chokepoint 2.0 comes to an end.

The Federal Reserve is considering introducing a new type of “payment account” to make it easier for financial technology and crypto assets banks to participate in the Central Bank payment system, marking the end of the entry challenges for crypto industry banks. The Federal Reserve announced that the “streamlined” master account will be open to legally qualified entities that establish accounts and are paid through third-party banks. Industry observers welcomed this, seeing it as a sign of the end of “Operation Chokepoint 2.0.”

Streamlining the operation mechanism and opening conditions of payment accounts

(Source: Youtube)

On October 21, Federal Reserve Board member Christopher J. Waller stated during a payment innovation conference: “I believe we can and should do more to support those who are actively changing the payment system.” He added that he has asked Federal Reserve staff to explore the idea of “payment accounts.”

The newly launched “Payment Account” will seek to grant full access rights to fintech companies looking to utilize Central Bank payment services, which are currently reserved for large banks and financial institutions through the Federal Reserve's “Master Account”. All legally qualified institutions that are currently providing payment services through third-party banks can use the Payment Account.

Waller stated that the “streamlined” master account will provide a payment channel for The Federal Reserve (FED), while also “controlling various risks associated with the FED and payment systems.” This dual-track design shows that the FED is seeking a balance between open access and risk management. Traditional master account requirements are strict and involve multiple reviews regarding capital adequacy, liquidity management, and regulatory compliance, which makes it difficult for many crypto assets banks and fintech companies to obtain approval.

The core logic of streamlined payment accounts lies in functional separation. It does not provide complete banking services but focuses on payment settlement functions. This design reduces the risk exposure to The Federal Reserve (FED), as these accounts do not involve deposit insurance, loan issuance, or complex financial derivatives trading. For Crypto Assets banks, this is precisely the functionality they need most: the ability to directly participate in The Federal Reserve (FED)'s payment system for real-time settlement between fiat currency and Crypto Assets.

Three Major Advantages of Streamlined Payment Accounts for Crypto Assets Banks:

Reduce Intermediary Costs: Direct access to the Federal Reserve payment system without going through third-party banks, reducing transaction fees and settlement delays.

Enhancing Compliance: The Federal Reserve (FED) account itself serves as an endorsement of compliance, helping Crypto Assets banks gain broader trust from business partners.

Enhance Stability: Break free from reliance on a single or a few commercial banks to avoid sudden loss of banking services due to changes in partner bank policies.

Although this idea is still in the experimental stage, it marks an increasing integration of financial technology and crypto payment companies within the traditional financial system. Waller's statement indicates that the senior officials of the Federal Reserve have recognized that excluding innovative payment companies from the central bank system is not only unfair but may also hinder the modernization of the U.S. payment system.

The End of Operation Chokepoint 2.0 and Industry Reaction

Industry observers believe that this news is a positive development for the crypto industry, as many companies have faced the challenge of de-banking in the past. During the administration of former U.S. President Joe Biden, at least 30 founders of fintech and crypto assets were denied bank access, with some insiders calling it a well-coordinated operation known as “Operation Chokepoint 2.0.”

Caitlin Long, founder and CEO of Custodia Bank, wrote in a post on X on Tuesday: “Thank you Governor Waller for recognizing the serious mistake the Federal Reserve made in blocking payment-only banks from accessing the Federal Reserve's master account, and for reopening the access rules established by the Federal Reserve to prevent Custodia Bank from entering.” She added, “The Federal Reserve told the court that such companies are inherently unsafe and unsound, threatening financial stability. Thank you for acknowledging that this is not true—this has never been true!”

Custodia Bank's case is a typical representative of the cryptocurrency bank access crisis. The bank applied for a Federal Reserve master account in 2020, but the application was rejected in 2023 on the grounds of “safety and soundness issues.” However, Custodia Bank had sufficient capital, strict compliance processes, and a transparent business model at that time, which led the industry to generally believe that the rejection was due to political rather than technical reasons.

In 2023, the collapse of crypto-friendly banks triggered the first accusations of “Operation Chokepoint 2.0.” Critics, including venture capitalist Nic Carter, described this as the government pressuring banks to sever ties with crypto asset companies. The successive collapses or withdrawals from the crypto business of SilverGate Bank, Signature Bank, and Silicon Valley Bank left the entire industry nearly devoid of banking partners.

This de-banking not only affects crypto asset exchanges and wallet service providers, but also impacts legitimate blockchain technology companies, NFT platforms, and DeFi protocol developers. Many companies are forced to turn to overseas banks or use complex intermediary structures to maintain fiat currency channels, significantly increasing operational costs and compliance risks.

The Federal Reserve's decision to launch a streamlined payment account shows that policymakers have recognized the negative impacts of excessive restrictions. Against the backdrop of the Trump administration's push for crypto-friendly policies, this shift by the Federal Reserve also aligns with a broader regulatory direction adjustment. This is not only an opening for Crypto Assets banking but also an acknowledgment of innovative payment technologies.

The Federal Reserve (FED) embraces blockchain, tokenization, and smart contracts

Before announcing the idea of “streamlining” the main account, the Federal Reserve (FED) has been trying to use blockchain technology for payments. Waller stated that the Central Bank has been exploring the applications of blockchain and artificial intelligence in payment-related use cases, and added, “We are also looking to the future, conducting practical research on the intersection of tokenization, smart contracts, and artificial intelligence and payments, in order to use it in our own payment systems.”

Waller added, “We do this to understand the innovations within the payment system and to assess whether these technologies can provide opportunities to upgrade our own payment infrastructure.” This “hands-on” attitude marks a shift of the Federal Reserve from being an observer to a participant, no longer merely regulating blockchain innovations, but actively exploring their applications within the Central Bank system.

Tokenization is one of the key areas of research by The Federal Reserve (FED). Tokenizing traditional assets such as bonds, stocks, or commodities and trading them on the blockchain can significantly reduce settlement time and intermediary costs. If the payment system of The Federal Reserve (FED) can natively support the settlement of tokenized assets, it will bring revolutionary changes to the entire financial market.

The application of smart contracts is even more extensive. Through pre-programmed automatically executed contracts, payments can be tied to specific conditions, such as “automatic payment upon delivery of goods” or “automatic distribution of interest upon maturity.” This concept of programmable currency upgrades payment from a simple value transfer to a complex business logic execution tool.

The intersection of artificial intelligence and payment involves fraud detection, liquidity management, and personalized financial services. AI can analyze transaction patterns in real-time, identify anomalous behavior, and automatically trigger risk control measures. For payment systems of the Federal Reserve (FED) that handle massive transactions, the introduction of AI will significantly enhance efficiency and security.

The Significance of The Federal Reserve's Technical Exploration for Crypto Assets Banking:

Technical Standardization: The Federal Reserve (FED) adopting blockchain technology will promote the formation of industry standards and reduce interoperability barriers.

Clear Compliance Path: The Central Bank's actual use of smart contracts and tokenization will provide clear compliance references for Crypto Assets banks.

Ecosystem Integration: The technological foundations of traditional finance and crypto finance are converging, reducing the barriers between the two.

This technology embraces an attitude that complements the launch of streamlined payment accounts. The Federal Reserve (FED) no longer views crypto assets banks as a threat or an outlier, but rather as an important component of the payment innovation ecosystem. This shift in perception lays the foundation for long-term cooperation between both parties.