What signals did the Federal Reserve’s latest Fintech meeting send?

On October 21st, in Washington, D.C., a conference room at the Federal Reserve headquarters was filled with people who, just a few years ago, would have been considered troublemakers in the financial system.

The founder of Chainlink, the president of Circle, the CFO of Coinbase, and the COO of BlackRock sat face-to-face with Federal Reserve Board Governor Christopher Waller to discuss stablecoins, tokenization, and AI-powered payments.

This was the first time the Federal Reserve had held a payments innovation conference. The meeting was not open to the public but was livestreamed. The agenda listed four topics: the integration of traditional finance and digital assets, the business model of stablecoins, the application of AI in payments, and tokenized products. Each topic represented a multi-trillion dollar market. Waller opened his speech by declaring, "This is a new era for the Federal Reserve in payments. The DeFi industry is no longer viewed as suspicious or subject to ridicule." After this statement spread throughout the crypto community, Bitcoin rose two points that day. In his opening remarks, Waller also stated, "Payment innovation is developing rapidly, and the Federal Reserve needs to keep pace." The Payment Innovation Conference featured four roundtable discussions, which Beating summarized. The following are the core topics and content of the conference: The Federal Reserve's "Slimmed-Down Master Account" The most important concept Waller proposed was the concept of a "streamlined master account." A master account at the Federal Reserve serves as a bank's gateway to the Federal Reserve's payment system. With this account, banks can directly access payment rails like Fedwire and FedNow without going through intermediaries. However, the threshold for obtaining a master account is high, and the approval process is lengthy. Many crypto companies have applied for years but haven't received one. Custodia Bank is a typical example. This Wyoming-based crypto bank began applying for a master account in 2020, but the Fed delayed its application for over two years, ultimately leading to a lawsuit. Kraken has also encountered similar issues. Waller stated that many payment companies don't need the full functionality of a master account. They don't need to borrow money from the Fed or have daytime overdrafts; they simply need access to the payment system. Therefore, the Fed is developing a "lite" version to provide these companies with basic payment services while controlling risk.

Specifically, this account will not pay interest and may have a balance limit, preventing overdrafts and loans, but its approval process will be much faster.

Federal Reserve Board Governor Waller

What does this proposal mean? Stablecoin issuers and crypto payment companies can directly access the Federal Reserve's payment system, no longer having to rely on traditional banks.

This will significantly reduce costs and improve efficiency. More importantly, this is the first time the Federal Reserve has officially recognized these companies as legitimate financial institutions. Dialogue 1: Traditional Finance Meets the Digital Ecosystem The first panel discussion focused on the convergence of traditional finance and the digital asset ecosystem. Moderated by Rebecca Rettig, Chief Legal Officer of Jito Labs, the panel included Chainlink co-founder Sergey Nazarov, Lead Bank CEO Jackie Reses, Fireblocks CEO Michael Shoroff, and Jennifer Buck, Global Head of Treasury Services and Depositary Receipts at Bank of New York Mellon.

From left to right are Rebecca Rettig, Chief Legal Officer of Jito Labs, Sergey Nazarov, co-founder of Chainlink, Jackie Reses, CEO of Lead Bank, Michael Shoroff, CEO of Fireblocks, and Jennifer Buck, Global Head of Treasury Services and Depositary Receipts of Bank of New York Mellon

· Interoperability is the biggest obstacle to integration

The industry needs a pragmatic regulatory and risk control framework

The conversation also touched on the issue of AI fraud, which led to a discussion on the reversibility of on-chain transactions. Traditional wire transfers can be reversed, but blockchain transactions are final. Maintaining on-chain finality while meeting regulatory requirements for revocable processes presents a daunting challenge. Reses urged regulators to proceed "slow and steady," because "innovation is always great, until your family gets scammed." Fireblocks CEO Michael Shoroff steered the discussion toward deeper economic and regulatory issues. He noted that stablecoins could reshape credit markets and, in turn, influence the Federal Reserve's monetary policy. He also highlighted a specific regulatory ambiguity: the unclear responsibilities of banks in placing their tokenized deposits on a public blockchain, a key issue currently hindering the progress of these projects. He called for further research into how digital assets could transform bank balance sheets and the Federal Reserve's role in this process. Finally, Jennifer Buck of Bank of New York Mellon presented a "wish list," listing four priorities that traditional banks hope regulators will address: ensuring 24/7 access to payment systems, developing technical standards, strengthening fraud detection, and establishing a liquidity and redemption framework for stablecoins and tokenized deposits. The second panel discussion focused on stablecoins. Moderated by Kyle Samani, co-founder of Multicoin Capital, the panelists included Charles Cascarilla, CEO of Paxos; Heath Tarbert, Chairman of Circle; Tim Spence, CEO of Fifth Third Bank; and Fernando Tres, CEO of DolarApp.

From left to right are Multicoin Capital co-founder Kyle Samani, Paxos CEO Charles Cascarilla, Fifth Third Bank CEO Tim Spence, DolarApp CEO Fernando Tres, and Circle Chairman Heath Tarbert

· Strong demand and use cases for compliant stablecoins

In July this year, the United States passed the GENIUS Act, which requires stablecoin issuers to hold 100% high-quality reserve assets, mainly cash and short-term U.S. Treasury bonds. After the bill came into effect, the proportion of compliant stablecoins increased from less than 50% at the beginning of the year to 72%. Circle and Paxos were the biggest beneficiaries. USDC's circulation reached $65 billion in the second quarter of this year, accounting for 28% of the global market, with an annual growth rate of over 40%. In terms of use cases, Spence, representing the banks, offered the most pragmatic view. He believes that the most powerful and direct use case for stablecoins is "cross-border payments" because it effectively solves the pain points of traditional clearing delays and foreign exchange risks. In contrast, the programmability required for AI-agent commerce lies in the longer term. DolarApp's Tres added, from a Latin American perspective, that for countries with unstable currencies, stablecoins aren't speculative tools but essential means of preserving value. This reminded the US-centric policymakers present that the application scenarios for stablecoins are far broader than they might imagine. · The "dial-up" experience bottleneck Cascarilla highlighted the industry's biggest growth headache: user experience. He compared current DeFi and cryptocurrency to the early days of "dial-up internet," bluntly stating that DeFi and cryptocurrency haven't yet been fully abstracted. He believes that mass adoption will only occur when blockchain technology is well abstracted, becoming "invisible." "No one knows how a phone works...but everyone knows how to use it. Cryptocurrencies, blockchains, and stablecoins need to be like that." Cascarilla praised companies like PayPal, arguing that their integration of stablecoins into traditional finance is an early sign of this shift in usability. The Threat to the Banking System: Circle's Tarbert and Fifth Third Bank's Spence also participated in the discussion, representing the traditional banks' stance. Their presence alone is a signal. Spence first sought to reshape the identity of banks, proposing "ScaledFi" to replace "TradFi" (traditional finance), stating that banks' "old" identity is "the least interesting thing." He also pointed out that stablecoins won't deplete banks' capital, but they will deplete deposits. The real threat lies in allowing stablecoins to pay interest (even disguised as "rewards" like Coinbase's USDC subsidies), which would pose a significant threat to the formation of bank credit. The core function of a bank is to accept deposits and make loans (i.e., credit creation). If stablecoins, with their flexibility and potential interest, attract a large amount of deposits, banks' lending capacity will decline, threatening the credit system of the entire economy. This is similar to the impact of early money market mutual funds (MMMFs) on the banking system. The third panel discussion focused on AI. Moderated by Matt Marcus, CEO of Modern Treasury, the panel featured Cathie Wood, CEO of ARK Invest; Alessia Haas, CFO of Coinbase; Emily Sands, Head of AI at Stripe; and Richard Weidman, Head of Web3 Strategy at Google Cloud.

·AI is ushering in the era of "agent commerce."

Cathay predicts that AI-driven "agent payment systems"—meaning AI is shifting from "knowledge" to "execution"—will be able to make autonomous financial decisions on behalf of users (such as paying bills, shopping, and investing). This will bring about a huge release of productivity. She asserted, "We believe that with such breakthroughs and the unleashing of productivity, real GDP growth could accelerate to 7% or higher over the next five years." ARK Invest CEO Cathie Wood also cited AI and blockchain as the two most important platforms driving this wave of productivity. Reflecting on U.S. regulation, she argued that early hostility toward blockchain was a blessing in disguise, forcing policymakers to rethink and serving as a wake-up call for the United States to regain its leadership in the "next generation internet." From a practical perspective, Emily Sands of Stripe emphasized that while use cases for AI-powered shopping agents (such as one-click checkout via ChatGPT) are already emerging, mitigating fraud risk remains "one of the most pressing challenges." Merchants must clearly define how their systems interact with these AI agents to prevent new types of fraud. AI is also achieving remarkable results in improving financial efficiency. Coinbase's Alessia Haas predicts that by the end of the year, half of Coinbase's code will be written by AI robots, nearly doubling its R&D workforce. In financial reconciliation, processing crypto transactions takes one person half a day, while processing the same amount of fiat transactions would require 15 people over three days. This demonstrates how AI and crypto technologies significantly reduce operating costs. Stablecoins are the new financial infrastructure urgently needed by AI agents. A second consensus emerged from the discussion: AI agents require a new, native financial instrument, and stablecoins are a natural solution. Richard Wiedemann of Google Cloud explained that AI agents cannot open traditional bank accounts like humans, but they can have crypto wallets. Stablecoins offer a perfect solution, offering programmability and making them particularly well-suited for AI-driven automated microtransactions (such as two-cent payments) and machine-to-machine (M2M) settlements. Coinbase's Alessia Haas added to this, arguing that the programmability of stablecoins and the increasingly clear regulatory landscape make them ideal for AI-driven transactions. The rapid monetization of AI companies (ARR growth is 3-4 times that of SaaS companies) also requires that payment infrastructure integrate new payment methods like stablecoins. Furthermore, stablecoins and blockchain technology offer new fraud prevention tools, such as leveraging on-chain transaction visibility to train AI fraud models, address whitelisting/blacklisting mechanisms, and transaction finality (eliminating chargeback risk for merchants). Dialogue Four: Everything on the Chain The fourth panel discussed tokenized products. The moderator was Colleen Sullivan, head of venture capital at Brevan Howard Digital, and on stage were Franklin Templeton CEO Jenny Johnson, DRW CEO Don Wilson, BlackRock COO Rob Goodstein, and Kara Kennedy, co-head of JPMorgan Kinexys.

From left to right are BHD Colleen Sullivan, Franklin Templeton CEO Jenny Johnson, BlackRock COO Rob Goodstein, and JPMorgan Chase Kinexys co-head Kara Kennedy

It is only a matter of time before traditional financial assets are put on the blockchain

The participants unanimously agreed that asset tokenization is an irreversible trend. BlackRock COO Goodstein made the most direct statement, stating, "It's not a question of if, but when." He pointed out that digital wallets already hold approximately $4.5 trillion, a figure that will continue to rise as investors gain direct access to tokenized stocks, bonds, and funds through blockchain portfolios. DRW's Wilson made a more specific prediction, believing that within the next five years, every frequently traded financial asset will be traded on-chain. Franklin Templeton's Johnson compared this to historical technological changes, concluding, "Technology adoption is always slower than people expect, and then suddenly it takes off." Tokenization isn't a distant vision; it's happening now. Currently, traditional finance and digital assets are merging in both directions: traditional assets (such as stocks and government bonds) are being tokenized and used in DeFi, while digital assets (such as stablecoins and tokenized money market funds) are also being integrated into traditional markets. Various institutions have already been actively preparing for this initiative. Johnson revealed that Franklin Templeton has launched a native on-chain money market fund (MMF), capable of calculating intraday returns down to the second. Kennedy outlined JPMorgan Chase's Kinexys developments, including the use of tokenized US Treasury bonds for minute-by-minute overnight repos and the launch of a proof-of-concept for the JPMD deposit token. Wilson also confirmed that DRW is already participating in on-chain US Treasury bond repos. Crypto-native "bad practices" must not be replicated. Despite the promising prospects, traditional financial giants remain highly wary of the risks. They emphasize that tokenized assets should not be interchangeable with stablecoins and deposit tokens, and that the market must assess the collateral "haircuts" of different assets based on credit quality, liquidity, and transparency. BlackRock's Goodstein warned of the dangers of many so-called "tokens" being complexly packaged "structured products." A lack of a full understanding of these structures can be dangerous. DRW's Wilson pointedly pointed out the serious issues exposed by the recent crypto market flash crash (October 11): unreliable oracles and conflicts of interest such as trading platforms conducting internal liquidations and shutting down user deposits for profit. He emphatically stated that these are "bad practices that traditional finance should not replicate" before entering DeFi, and that strict infrastructure oversight and market quality standards must be established first. Furthermore, for compliance (AML/KYC) requirements, regulated banks must use permissioned distributed ledgers (DLT). Who is winning in the race for digital finance? The signal from this meeting is clear: the Federal Reserve no longer views the crypto industry as a threat, but rather as a partner. Over the past year or two, global competition in digital currencies has intensified. The digital RMB has made rapid progress in cross-border payments, with transaction volume expected to reach $870 billion in 2024. The EU's MiCA regulation has come into effect, and Singapore and Hong Kong are also developing their crypto regulatory frameworks. The United States is feeling the pressure. However, its policy differs. Rather than promoting a government-led central bank digital currency, the US embraces private sector innovation. The Anti-CBDC Surveillance State Act, passed this year, explicitly prohibits the Federal Reserve from issuing a digital dollar. The US's logic is to let companies like Circle and Coinbase develop stablecoins, and BlackRock and JPMorgan Chase handle tokenization, with the government solely responsible for setting rules and oversight. The most direct beneficiaries are compliant stablecoin issuers. Circle and Paxos have seen their valuations surge in recent months. Traditional financial institutions are also accelerating their deployment. JPMorgan Chase's JPM Coin has processed over $300 billion in transactions. Citigroup and Wells Fargo are both testing digital asset custody platforms. Data shows that 46% of US banks now offer cryptocurrency-related services to clients, compared to just 18% three years ago. The market reaction has been significant. Since the Federal Reserve signaled looser regulations in April, the size of the stablecoin market has surged from over $200 billion at the beginning of the year to $307 billion. This strategy is driven by deep political and economic considerations. Central bank digital currencies imply direct government oversight of every transaction, a difficult proposition to accept in American political culture. In contrast, private-sector stablecoins can maintain the dollar's global status while avoiding controversy surrounding excessive government power. However, this strategy also carries risks. Private stablecoin issuers could create new monopolies, and their collapse could trigger systemic risks. Finding the right balance between encouraging innovation and mitigating risks is a challenge facing US regulators. In his closing remarks, Waller stated that consumers don't need to understand these technologies, but ensuring their safety and efficiency is everyone's responsibility. While this may sound like official rhetoric, the signal it sends is clear: the Federal Reserve is determined to integrate the crypto industry into the mainstream financial system. This meeting did not issue any policy documents, nor did it make any decisions. But the signal it sent was more powerful than any official document. An era of dialogue has begun, and the era of confrontation has ended.