What signals emerged from the latest Fintech conference held by the Federal Reserve?

October 21, Washington, D.C. The conference room at the Federal Reserve headquarters was packed with people who, just a few years ago, were considered troublemakers in the financial system. The founder of Chainlink, the president of Circle, the CFO of Coinbase, the COO of BlackRock—they sat face-to-face with Federal Reserve Governor Christopher Waller, discussing stablecoins, tokenization, and AI payments.

This was the Federal Reserve’s first-ever Payments Innovation Conference. The event was closed to the public but broadcast live. The agenda listed four topics: the integration of traditional finance and digital assets, stablecoin business models, AI applications in payments, and tokenized products. Behind each topic lies a multi-trillion-dollar market.

Waller said in his opening remarks, “This is a new era for the Fed in payments; the DeFi industry is no longer viewed with suspicion or ridicule.” After this statement spread through the crypto community, bitcoin rose 2% that day. In his opening speech, Waller also said, “Payment innovation is developing rapidly, and the Fed needs to keep up.”

This Payments Innovation Conference featured four roundtable discussions. Beating summarized the content, and the following are the core topics and content of the conference:

The Fed’s “Slimmed-Down Master Account”

The most important concept Waller introduced was the so-called “streamlined master account.”

The Fed’s master account is the passport for banks to access the Fed’s payment systems. With this account, banks can directly use payment rails like Fedwire and FedNow without intermediaries. But the threshold for a master account is high, and the approval process is lengthy—many crypto companies have applied for years without success.

Custodia Bank is a typical case. This Wyoming-based crypto bank began applying for a master account in 2020, was delayed by the Fed for over two years, and eventually sued the Fed. Kraken faced similar issues.

Waller said that many payment companies do not need all the functions of a master account. They don’t need to borrow from the Fed or have intraday overdrafts; they just need access to the payment system. So the Fed is studying a “streamlined version” to provide these companies with basic payment services while controlling risk. Specifically, this account would not pay interest, might have a balance cap, cannot be overdrawn or used for borrowing, but the approval process would be much faster.

Federal Reserve Governor Waller

What does this proposal mean? Stablecoin issuers and crypto payment companies could directly access the Fed’s payment system without relying on traditional banks. This would significantly reduce costs and improve efficiency. More importantly, it marks the first time the Fed has formally recognized these companies as legitimate financial institutions.

Dialogue One: Traditional Finance Meets the Digital Ecosystem

The first panel discussion focused on “the integration of traditional finance and the digital asset ecosystem.” The moderator was Rebecca Rettig, Chief Legal Officer of Jito Labs. On stage were Sergey Nazarov, co-founder of Chainlink; Jackie Reses, CEO of Lead Bank; Michael Shaulov, CEO of Fireblocks; and Jennifer Barker, Global Head of Treasury Services and Depositary Receipts at BNY Mellon.

From left to right: Rebecca Rettig, Chief Legal Officer of Jito Labs; Sergey Nazarov, co-founder of Chainlink; Jackie Reses, CEO of Lead Bank; Michael Shaulov, CEO of Fireblocks; Jennifer Barker, Global Head of Treasury Services and Depositary Receipts at BNY Mellon

· Interoperability Is the Biggest Obstacle to Integration

Chainlink co-founder Nazarov got straight to the point: the biggest problem now is interoperability. There is a lack of unified compliance standards, identity verification mechanisms, and accounting frameworks between blockchain assets and traditional financial systems. As the cost of creating new chains decreases, “fragmentation” is intensifying, making the need for unified standards more urgent.

He called on the Fed to ensure payment systems can interoperate with stablecoins and tokenized deposits. He said the payments sector represents the “buy side” of the digital asset economy, and if the Fed can provide a clear risk management framework, the U.S. can maintain its lead in global digital payment innovation.

He noted that a year ago, it was unimaginable to discuss “regulated DeFi” at the Fed, which itself marks a positive trend. Nazarov predicted that in the next 2 to 5 years, a hybrid model will emerge: a “regulated DeFi variant,” where compliance processes are automated via smart contracts.

· Traditional Banks Are Not Ready; The Core Bottleneck Is Cognition and Talent

Lead Bank CEO Reses believes that even with a blueprint for integrating traditional finance and the digital ecosystem, most banks are not ready to handle such integration. Traditional banks lack wallet infrastructure, systems for handling crypto deposits and withdrawals, and, more importantly, “talent who understand blockchain products.”

She further summarized the problem as a gap in cognition and capability, emphasizing that the biggest obstacle is not technology itself, but “the knowledge and execution ability of the bank’s core financial services team.” Because these core teams lack the ability to understand and judge emerging blockchain products, they simply don’t know how to effectively regulate or supervise these new businesses.

This lack of readiness is especially evident on the retail side. Reses mentioned that while KYC systems for institutions are relatively mature, retail users still have difficulty accessing these tools. This exposes an awkward reality: even if banks want to participate, their service capabilities are limited to a few institutional clients, and mass adoption is still far off.

· The Industry Needs Pragmatic Regulatory and Risk Control Frameworks

The discussion also touched on AI fraud, leading to a debate on the “reversibility” of on-chain transactions. Traditional wire transfers can be reversed, but blockchain transactions are final. How to meet regulatory requirements for reversibility while maintaining on-chain finality is a serious challenge. Reses called for regulators to “move slowly and steadily,” because “innovation is always great—until your own family gets scammed.”

Fireblocks CEO Michael Shaulov steered the discussion toward deeper economic and regulatory issues. He pointed out that stablecoins could reshape the credit market and thus affect the Fed’s monetary policy. He also highlighted a specific regulatory gray area: when banks place “tokenized deposits” on public blockchains, their responsibilities remain unclear, which is a key issue hindering bank projects. He called for further research into how digital assets change banks’ balance sheets and the Fed’s role in this process.

Finally, Jennifer Barker from BNY Mellon presented a “wish list” of four priorities traditional banks hope regulators will address: enabling 24/7 payment systems, setting technical standards, strengthening fraud detection, and establishing liquidity and redemption frameworks for stablecoins and tokenized deposits.

Dialogue Two: The Troubles and Opportunities of Stablecoins

The second panel focused on stablecoins. The moderator was Kyle Samani, co-founder of Multicoin Capital. On stage were 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: Kyle Samani, co-founder of Multicoin Capital; Charles Cascarilla, CEO of Paxos; Tim Spence, CEO of Fifth Third Bank; Fernando Tres, CEO of DolarApp; Heath Tarbert, Chairman of Circle

· Strong Demand and Use Cases for Compliant Stablecoins

In July this year, the U.S. passed the GENIUS Act, requiring stablecoin issuers to hold 100% high-quality reserve assets, mainly cash and short-term U.S. Treasuries. After the law took effect, the share of compliant stablecoins rose 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 Q2 this year, accounting for 28% of the global market, with annual growth exceeding 40%.

On use cases, Spence, representing banks, offered the most pragmatic view. He believes the strongest and most direct use case for stablecoins is “cross-border payments,” as they genuinely solve the pain points of settlement delays and FX risk in traditional systems. In contrast, programmability for AI-driven commerce is a more distant future.

Tres from DolarApp added a Latin American perspective: for countries with unstable local currencies, stablecoins are not speculative tools but essential means of preserving value, reminding the U.S.-centric decision-makers present that stablecoin use cases are far broader than they imagine.

· The “Dial-Up Internet” User Experience Bottleneck

Cascarilla pointed out the industry’s biggest growth pain: user experience.

He compared today’s DeFi and crypto to the early days of “dial-up internet,” bluntly stating that DeFi and crypto have not yet been sufficiently abstracted. He believes that only when blockchain technology is well abstracted and becomes “invisible” will mass adoption occur. “No one knows how a mobile phone works... but everyone knows how to use it. Crypto, blockchain, and stablecoins need to be like that.”

Cascarilla praised companies like PayPal, saying their integration of stablecoins into traditional finance is an early sign of this usability shift.

· The Threat to the Banking Credit System

Circle’s Tarbert and Fifth Third Bank’s Spence also joined the discussion, representing the traditional banking perspective—their presence itself is a signal.

Spence first tried to rebrand banks, proposing “ScaledFi” (scaled finance) instead of “TradFi” (traditional finance), and said that banks’ “old” identity “is the least interesting thing.”

He also pointed out that stablecoins will not deplete banks’ “capital,” but will drain “deposits.” The real threat is that if stablecoins are allowed to pay interest (even disguised as “rewards” like Coinbase’s USDC incentives), it would pose a major threat to the formation of bank credit.

The core function of banks is to absorb deposits and make loans (i.e., create credit). If stablecoins, with their flexibility and potential interest, siphon off large amounts of deposits, banks’ lending capacity will shrink, threatening the entire economy’s credit system. This is similar to the impact early money market mutual funds (MMMFs) had on the banking system.

Dialogue Three: AI Fantasies and Reality

The third panel focused on AI. The moderator was Matt Marcus, CEO of Modern Treasury. On stage were Cathie Wood, CEO of ARK Invest; Alesia Haas, CFO of Coinbase; Emily Sands, Head of AI at Stripe; and Richard Widmann, Web3 Strategy Lead at Google Cloud.

· AI Is Ushering in the “Agent Economy” Era

Cathie Wood predicted that AI-driven “agent payment systems”—where AI shifts from “knowing” to “doing” and can autonomously make financial decisions for users (such as paying bills, shopping, investing)—will unleash massive productivity. She asserted: “We believe that with such breakthroughs and productivity gains, real GDP growth could accelerate to 7% or higher over the next five years.”

ARK Invest CEO Cathie Wood

Additionally, Wood named AI and blockchain as the two most important platforms driving this wave of productivity. She reflected on U.S. regulation, arguing that early hostility to blockchain was a blessing in disguise, forcing policymakers to rethink and sounding the alarm for the U.S. to reclaim leadership in the “next-generation internet.”

Emily Sands from Stripe emphasized from a practical perspective that although AI agent shopping (such as one-click checkout via ChatGPT) is already emerging, mitigating fraud risk remains “one of the most urgent challenges.” Merchants must clearly define how their systems interact with these AI agents to prevent new types of fraud.

In terms of financial efficiency, AI’s impact is also remarkable. Coinbase’s Alesia Haas said Coinbase expects half its code to be written by AI bots by year-end, nearly doubling R&D productivity. In financial reconciliation, reconciling crypto transactions takes one person half a day, while reconciling an equivalent amount of fiat transactions takes 15 people three days—showing how AI and crypto technology greatly reduce operational costs.

· Stablecoins Are the New Financial Infrastructure AI Agents Urgently Need

The second consensus in the discussion was that AI agents need a new, native financial tool—and stablecoins are the natural solution.

Richard Widmann from Google Cloud explained that AI agents cannot open traditional bank accounts like humans, but they can have crypto wallets. Stablecoins provide the perfect solution, offering programmability and being particularly suited for AI-driven automated microtransactions (such as two-cent payments) and machine-to-machine (M2M) settlement.

Coinbase’s Alesia Haas added that the programmability of stablecoins and the increasingly clear regulatory environment make them the ideal choice for AI-driven transactions. The rapid monetization of AI companies (ARR growth is 3-4 times that of SaaS companies) also requires payment infrastructure to support new methods like stablecoins.

At the same time, stablecoins and blockchain technology provide new anti-fraud tools, such as using on-chain transaction visibility to train AI fraud models, address whitelisting/blacklisting mechanisms, and transaction finality (merchants face no chargeback risk).

Dialogue Four: Everything On-Chain

The fourth panel focused on tokenized products. The moderator was Colleen Sullivan, Head of Venture at Brevan Howard Digital. On stage were Jenny Johnson, CEO of Franklin Templeton; Don Wilson, CEO of DRW; Rob Goldstein, COO of BlackRock; and Carla Kennedy, Co-Head of JPMorgan Kinexys.

From left to right: BHD’s Colleen Sullivan; Franklin Templeton CEO Jenny Johnson; BlackRock COO Rob Goldstein; JPMorgan Kinexys Co-Head Carla Kennedy

· It’s Only a Matter of Time Before Traditional Financial Assets Go On-Chain

Participants unanimously agreed that asset tokenization is an irreversible trend. BlackRock COO Goldstein was the most direct: “It’s not a question of if, but when.” He noted that digital wallets already hold about $4.5 trillion, and as investors can directly hold tokenized stocks, bonds, and funds via blockchain, this number will continue to climb.

DRW’s Wilson made a more specific prediction: he believes that within five years, every frequently traded financial instrument will be traded on-chain. Franklin Templeton’s Johnson compared this to historical technological revolutions, summarizing: “Technology adoption is always slower than people expect, then suddenly it takes off.”

Tokenization is not a distant vision but an ongoing reality. Currently, traditional finance and digital assets are merging in both directions: traditional assets (like stocks and Treasuries) are being tokenized and used in DeFi, while digital assets (like stablecoins and tokenized money market funds) are entering traditional markets.

Institutions have long been actively deploying. Johnson revealed that Franklin Templeton has launched a native on-chain money market fund (MMF) that enables second-by-second intraday yield calculation. Kennedy introduced JPMorgan Kinexys’s progress, including using tokenized U.S. Treasuries for minute-level overnight repo transactions and launching a proof-of-concept for the JPMD deposit token. Wilson confirmed that DRW is already participating in on-chain U.S. Treasury repo transactions.

· The “Bad Practices” of Crypto-Native Must Not Be Repeated

Despite the promising outlook, traditional financial giants remain highly vigilant about risks. They emphasized that tokenized assets, stablecoins, and deposit tokens should not be interchangeable; the market must assess different assets’ collateral “haircuts” based on credit quality, liquidity, and transparency.

BlackRock’s Goldstein warned that many so-called “tokens” are actually complex “structured products” in disguise, and not fully understanding these structures is dangerous.

DRW’s Wilson sharply pointed out serious issues exposed by the recent crypto market flash crash (October 11): unreliable oracles, and trading platforms conducting internal liquidations and suspending user deposits for profit—conflicts of interest. He firmly stated that these are “bad practices” that traditional finance must not replicate before entering DeFi; strict infrastructure oversight and market quality standards must be established first. Additionally, for compliance (AML/KYC) reasons, regulated banks must use permissioned distributed ledgers (Permissioned DLT).

Who’s Winning the Digital Finance Race?

The message from this conference was clear: the Fed no longer sees the crypto industry as a threat, but as a partner.

Over the past year or two, global competition in digital currencies has intensified. The digital yuan has made rapid progress in cross-border payments, with transaction volume reaching $870 billion in 2024. The EU’s MiCA regulation has taken effect, and Singapore and Hong Kong are also improving their crypto regulatory frameworks. The U.S. feels the pressure.

But U.S. policy is different: it does not promote a government-led central bank digital currency, but embraces private sector innovation. The “Anti-CBDC Surveillance State Act” passed this year explicitly prohibits the Fed from issuing a digital dollar. The U.S. logic is to let companies like Circle and Coinbase handle stablecoins, and BlackRock and JPMorgan handle tokenization, while the government only sets rules and supervises.

The most direct beneficiaries are compliant stablecoin issuers; Circle and Paxos have seen their valuations soar in recent months. Traditional financial institutions are also accelerating their deployments: JPMorgan’s JPM Coin has processed over $30 billion in transactions. Citi and Wells Fargo are testing digital asset custody platforms.

Data shows that 46% of U.S. banks now offer crypto-related services to clients, up from just 18% three years ago. The market response is also clear. Since the Fed signaled regulatory easing in April, the stablecoin market has grown from just over $200 billion at the start of the year to $307 billion.

There are deep political and economic considerations behind this strategy. A central bank digital currency would mean direct government monitoring of every transaction, which is hard to accept in U.S. political culture. In contrast, privately issued stablecoins can maintain the dollar’s global status while avoiding controversies over government overreach.

But this strategy also carries risks. Private stablecoin issuers could form new monopolies, and their collapse could trigger systemic risk. How to balance encouraging innovation and preventing risk is the challenge facing U.S. regulators.

In his closing remarks, Waller said that consumers don’t need to understand these technologies, but ensuring their safety and efficiency is everyone’s responsibility. This may sound like official rhetoric, but the message is clear: the Fed has decided to bring the crypto industry into the mainstream financial system.

This conference did not issue any policy documents or make any decisions. But the signal it sent is more powerful than any official document. An era of dialogue has begun; the era of confrontation is over.