Crypto’s skin in the game: the high stakes of earning a banking licence

‘The heroes of history were not classicists and library rats, those people who live vicariously in their texts. They were people of deeds and had to be endowed with the spirit of risk taking’, Skin in the Game: Hidden Asymmetries in Daily Life, a 2018 nonfiction book by Nassim Nicholas Taleb

Since the global financial crisis of 2008, banking has undergone a profound transformation. Traditional institutions, once seen as untouchable pillars of trust and compliance, have been challenged by fintechs, tech vendors, and most radically the rise of Bitcoin and the crypto industry. These new players promise cheaper, faster, more inclusive, and sometimes decentralised financial services. Yet they face a fundamental hurdle: earning the trust that banks have historically commanded. Hacks, scams, volatility, and regulatory uncertainty have left the crypto space under a cloud of scepticism. But as regulation becomes clearer and examples like Anchorage or Amina Bank show, obtaining a banking licence could mark a turning point. More than just a legal stamp, it signals credibility, accountability, and a willingness to put ‘skin in the game’, in the spirit of Nassim Taleb’s reminder that true progress belongs to risk-takers who accept rewards as well as consequences.

In the following, we’ll explore what it means to obtain a crypto banking licence, focusing on the US and European landscapes, highlighting the opportunities, risks, and benefits that come with stepping into this highly regulated arena.

The role of banks in the financial system

Banks sit at the heart of the financial system, acting as intermediaries between depositors and borrowers while also powering payments, credit creation, and monetary policy. Their core services include safeguarding funds through insured deposits, extending credit via loans and mortgages, and facilitating domestic and international payments. Many banks also provide wealth management, foreign exchange, and corporate treasury services. Because they create money through lending and are central to financial stability, banks are heavily regulated, holding capital buffers, maintaining liquidity, and operating under government charters. Yet they remain exposed to risks such as loan defaults, liquidity shortages, or bank runs, which is why confidence and sound regulation are essential.

From traditional banks to crypto banks: an evolving role

The role of banks has undergone a dramatic shift over the past two decades. The 2008 Global Financial Crisis eroded public confidence because governments bailed out failing banks with taxpayer money, executives received bonuses despite mismanagement, and millions of people lost their homes and livelihoods.

Bitcoin was born out of this mistrust. In October 2008, Satoshi Nakamoto published the Bitcoin whitepaper as a direct response to the crisis, proposing a decentralised, peer-to-peer system designed to bypass the traditional financial institutions that had failed so many. Bitcoin’s promise of transparency, immutability, and independence sparked the broader crypto movement, and with it, a need for new payments and banking infrastructure to move digital assets, enable faster and cheaper transactions, and create more inclusive financial systems.

Still, this parallel system brought its own challenges. Some of them are associated with environmental costs (as Bitcoin mining consumes lots of energy), illicit finance concerns (sometimes bad actors use crypto to hide the provenance of their money), and extreme volatility (the price of crypto is influenced by the limited supply of the coins, the news coverage, or the arbitrage of the market). Over time, regulators and crypto innovators began to address these issues, with increasing collaboration and experimentation to integrate crypto more safely into the mainstream financial sector.

The push toward trusted crypto banking

Today, a new chapter is unfolding: the rise of crypto banks, or at least the intention of becoming a crypto bank is clearer.

Some providers, such as Sygnum Bank in Switzerland, have already secured licences to operate under the same regulatory frameworks as traditional banks, boosting their credibility and ability to serve more customers. Europe is building a structured, unified regulatory environment for crypto through MiCA, enabling passported licenses, improving transparency, and pushing for stronger compliance. Firms like Börse Stuttgart, MoonPay, Crypto.com, Bitpanda, and OKX are leading the charge by securing key authorisations.

Nevertheless, there is still some scepticism surrounding this space. The EU Anti-Money Laundering Authority (AMLA) identified crypto as the top money laundering risk in Europe, aiming to enforce uniform standards across member states. Regulators like ESMA have raised concerns about uneven application across member states (e.g., Malta’s licensing process) and warned firms against misleading marketing around ‘regulated’ status. And ECB President Christine Lagarde urged high safeguards for foreign stablecoin issuers to ensure EU financial stability.

In the US, there isn’t a ‘crypto bank’ that fully replicates a traditional bank’s services, including lending directly to consumers in the traditional sense. A few companies like Xapo Bank operate similarly to a commercial bank by offering both crypto and USD-denominated accounts with features like earning interest, but they are not direct equivalents to US-based commercial banks.

Still, through initiatives like the GENIUS Act and the anticipated CLARITY Act, the industry is steadily moving from disruption to integration, positioning crypto banks to become a trusted part of the global financial system. This regulatory clarity brought by these initiatives led firms such as Coinbase (actively considering applying for a federal bank charter), Paxos, Fidelity Digital Assets (already received a limited purpose trust charter from the New York State Department of Financial Services (DFS) in 2019), Ripple (applied for a national banking license), and Circle (aims to establish a national trust bank) to pursue bank charters, and established players like FIS to work with crypto players on deposit tokens and stablecoin infrastructure.  

Overall, the industry is evolving toward consolidation, legitimisation, and growth under increasingly uniform frameworks.

Types of licences for crypto banks

The traditional commercial bank charter (full banking license) remains the gold standard of banking licenses, granting full powers to take deposits, lend, process payments, and deliver the broad suite of financial services we associate with established banks. It is difficult to obtain but carries the highest level of trust and authority.

In the European Union, MiCA requires firms that want to conduct crypto operations in a compliant manner, to register as CASPs or, in the case of stablecoin issuers, secure an Electronic Money Institution (EMI) license, both of which can be ‘passported’ across the bloc. Switzerland is one of the few jurisdictions where regulators have granted full banking and securities dealer licenses to crypto-focused players such as Sygnum and SEBA, enabling them to operate much like conventional banks.

A CASP (Crypto Asset Service Provider) is essentially a regulatory framework designed for businesses dealing directly with cryptocurrencies, ensuring they comply with anti-money laundering (AML) and know-your-customer (KYC) obligations. While it doesn’t grant full banking powers like deposit-taking or lending, it legitimises crypto-focused businesses by providing regulatory oversight, operational clarity, and the ability to serve customers across the EU through passporting. This regime is critical for exchanges, custodians, and wallet providers that want to operate at scale within the European market.

An Electronic Money Institution (EMI) license is a regulatory authorisation that allows companies to issue and manage electronic money (e-money) that represents a claim on fiat currency and is redeemable at par (1:1). The license allows firms to issue digital money that users can spend, transfer, or store (examples include prepaid cards, digital wallets, or fiat-backed stablecoins). EMI license holders can process payments, execute transfers, and facilitate transactions between users, merchants, and banks. However, EMI licenses mainly cover issuance and payments, not crypto custody, so many providers combine it with a CASP registration if they want to handle non-fiat crypto services.

Stablecoins pegged to fiat are classified under MiCA as ‘Electronic Money Tokens’ (EMTs). To issue them, firms must obtain an EMI license, similar to what companies like PayPal hold for prepaid e-money. Circle, for example, secured an EMI license in France in 2024 to support its euro-backed stablecoin.

In the United States, there is no single, universal ‘crypto banking license’. Crypto firms looking to expand into banking generally pursue federal or state charters that allow them to provide crypto-specific services. These charters, granted by regulators at both levels, are the standard way for financial institutions to gain authorisation to operate banking services. While different types of charters exist, they can broadly be divided into full-service bank charters and limited-purpose charters. So far, many crypto firms have opted for limited-purpose charters as their preferred route.

Another option is for a crypto company to acquire a controlling stake in an existing bank, which requires approval from the Federal Reserve. For this to be permitted, the company’s crypto-related activities must be recognised as financial in nature. In addition, the parent company and any nonbank subsidiaries must demonstrate that they can act as a source of strength to the bank without creating safety or soundness risks.

At the federal level, the Office of the Comptroller of the Currency (OCC) grants national charters, including trust charters. These approvals typically allow entities to offer services linked to digital assets, such as custody, staking, and governance. However, failure to comply with regulatory protocols can lead to seizure of the assets.

Interesting to note is a difference between national charter and national trust charter.

A ‘national charter’ means a full national bank charter for traditional banking services like deposits and loans, while a ‘national trust charter’ is a more limited federal charter allowing entities like fintech firms to custody assets and provide financial services without full banking powers, offering advantages like access to payment systems but with different regulatory requirements and risks. The distinction is the presence or absence of traditional, full-scale banking powers such as taking deposits and making loans.  

So far, Anchorage Digital is the only crypto firm that has successfully converted its conditional OCC national trust charter into a permanent one. Circle has also applied for this license to underpin its USDC reserves.

At the state level, regulators also provide a range of charters, including trust charters. Some states have gone further by creating specialised charters for crypto firms. New York and Wyoming, for instance, have developed comprehensive frameworks, with Wyoming introducing the Special Purpose Depository Institution (SPDI) model.

SPDIs can provide crypto custody, US dollar accounts, and payments, but they don’t have the full lending and deposit powers of traditional banks. SPDIs are chartered and regulated by the Wyoming Division of Banking, with many of the same compliance and supervisory requirements as regular banks (AML/KYC, audits, risk controls). However, deposits are not FDIC insured, so customers assume that risk; but the SPDI model minimises insolvency risk by requiring 100% reserves, strict asset segregation, and a prohibition on risky lending activities. Unlike traditional banks that rely on fractional reserves, SPDIs are designed to act as safe custodians rather than profit-seeking lenders. Kraken Bank is a well-known example of holding this type of licence.

State-chartered banks, even those operating under nontraditional licenses, can apply to become state member banks, which would place them under Federal Reserve oversight and improve their chances of securing a master account. Access to a master account allows direct participation in payment systems, avoiding the need to route transactions through intermediary banks.

In 2020, Custodia Bank applied and secured a Wyoming Special Purpose Depository Institution (SPDI) charter. In the same year, the bank also applied for a master account with the Federal Reserve Bank of Kansas City. However, Custodia was denied this master account in January 2023, leading to ongoing legal action. While some of the reasons cited were specific to Custodia’s application, others reflected broader concerns about crypto firms entering the system. The Fed noted that Custodia’s business model was unprecedented, involved heightened risks, and relied heavily on activities that had never been approved for state member banks. The Board concluded that, given the speculative and volatile nature of the crypto-asset sector, the model was inconsistent with the goals of the Federal Reserve Act.

Despite this setback, Custodia continues to pursue its goal of securing a Federal Reserve master account. To strengthen its case, the bank is taking proactive steps such as launching one of the first bank-issued stablecoins under regulatory oversight and partnering with institutions like Vantage Bank to pilot compliant tokenized deposits. According to American Banker, such initiatives are designed to show regulators that stablecoins and programmable money can be integrated into the traditional banking system responsibly and safely.

Where no federal ‘crypto banking’ license exists, firms typically rely on money transmitter licenses (MTLs) at the state level. These licenses allow companies to move funds on behalf of customers (whether fiat or crypto) and are essential for operating exchanges, payment services, or remittance businesses. Federal laws like the Bank Secrecy Act (BSA) apply, requiring registration with FinCEN and anti-money laundering programs, but the actual money transmission licensing falls under the 49 distinct state regulatory frameworks, each with its own unique requirements, leading to high compliance costs and operational complexity. Unlike CASP licenses in Europe, MTLs are not harmonised, meaning requirements and oversight vary significantly across jurisdictions. Despite this fragmentation, holding money transmitter licenses is still the foundation for most crypto businesses in the US that want to operate legally and build customer trust.

Why crypto firms are chasing bank licenses

Crypto companies are increasingly seeking banking charters because they unlock critical advantages that go beyond regulatory ‘badges of honour’. A crypto license provides regulatory legitimacy, which makes it easier for firms to partner with traditional banks that have access to core payment rails like Fedwire or ACH, enabling fiat on-ramps and off-ramps for their services. A charter also signals credibility: being regulated like a bank, with capital buffers, audits, and supervisory oversight, reassures both customers and institutional partners. Beyond trust, a license opens the door to new products and services such as deposit-taking, lending, custody, and payments under one roof, rather than spread across multiple third-party providers.

However, as we saw, the path is far from easy (e.g. Custodia Bank’s case).

Benefits and risks for users, institutions, and the financial system

When crypto firms obtain banking licenses, they create a bridge between the regulated, insured world of traditional finance and the fast-moving, experimental world of digital assets. For retail users, this can mean safer custody of fiat deposits, more reliable on/off ramps, and cheaper cross-border payments.

At the same time, risks remain as deposit insurance usually covers only fiat, not stablecoins or crypto. Standard deposit insurance, such as the US Federal Deposit Insurance Corporation (FDIC), does not cover digital assets like cryptocurrencies because they are considered non-deposit products, similar to stocks, bonds, and commodities. These assets are often held by non-bank entities like crypto custodians or exchanges, and the FDIC only insures deposit accounts at member banks. Therefore, if you store digital assets with a crypto company and that company fails, your digital assets are not protected by FDIC insurance.

Also, regulators may restrict services like staking or lending; and the complexity of hybrid products could confuse users. In practice, customers gain trust and convenience, but must also accept stricter oversight, identity checks, and potential exposure to crypto volatility.

For institutions and the wider financial system, licensed crypto banks promise innovation, efficiency, and integration. They offer streamlined treasury management, faster settlements, and programmable money, while also extending financial inclusion through digital-first services. Yet, these benefits come with heavy compliance burdens, cybersecurity risks, and systemic concerns. If crypto banks scale too quickly or face shocks, their deep ties to traditional finance could amplify instability rather than reduce it. The challenge is balancing opportunity with safeguards so that innovation strengthens, rather than undermines, financial trust.

Conclusion

The pursuit of a banking licence by crypto firms is more than a regulatory box-ticking exercise; it is a bid for legitimacy in a sector still battling mistrust. Whether through state or federal charters in the US, or CASP and EMI licences under Europe’s MiCA framework, these authorisations are reshaping how crypto providers interact with the financial system. For businesses, licences open the door to payment rails, cross-border services, and institutional trust; for consumers, they promise greater security, oversight, and integration of digital and traditional finance. 
Yet the risks are equally real: blurred lines around protections, the fragility of hybrid business models, and the challenge of regulators keeping pace. What emerges is a landscape where crypto firms seeking to become ‘banks’ are not just testing new technologies; they are testing the very boundaries of what banking will mean in the decades ahead.

About author

Mirela Ciobanu is Lead Editor at The Paypers, specialising in the Banking and Fintech domain. With a keen eye for industry trends, she is constantly on the lookout for the latest developments in digital assets, regtech, payment innovation, and fraud prevention. Mirela is particularly passionate about crypto, blockchain, DeFi, and fincrime investigations, and is a strong advocate for online data privacy and protection. As a skilled writer, Mirela strives to deliver accurate and informative insights to her readers, always in pursuit of the most compelling version of the truth. Connect with Mirela on LinkedIn or reach out via email at mirelac@thepaypers.com.