On October 21st, in Washington D.C., the meeting room at the Federal Reserve headquarters was filled with people who a few years ago were seen as troublemakers in the financial system. The founder of Chainlink, the CEO of Circle, the CFO of Coinbase, the COO of BlackRock, and they sat face to face with Federal Reserve Governor Christopher Waller, discussing stablecoins, tokenization, and AI payments.

This was the first time the Federal Reserve held a Payment Innovation Conference. The conference was not open to the public but was live-streamed. The agenda listed four topics: the integration of traditional finance and digital assets, the business models of stablecoins, the application of AI in payments, and tokenized products. Behind each topic lies a market worth trillions of dollars.

In his opening remarks, Waller said, "This is a new era for the Federal Reserve in the payment sector, and the DeFi industry is no longer seen as suspicious or ridiculed." After this statement spread in the crypto community, Bitcoin rose by 2 points that day. In his opening speech, Waller also said, "Payment innovation is developing rapidly, and the Federal Reserve needs to keep up."

The Payment Innovation Conference consisted of four roundtable discussions, and Dynamic Beating summarized and organized its content. The following are the key topics and content of this conference:

The Federal Reserve's "Slimmed-Down Master Account"

The most important thing proposed by Waller is a concept called the "Slimmed-Down Master Account."

The Federal Reserve's master account is the pass for banks to access the Federal Reserve's payment system. With this account, banks can directly use payment rails such as Fedwire and FedNow without going through intermediaries. However, the threshold for the master account is high, the approval process is lengthy, and many crypto companies have applied for years without success.

Custodia Bank is a typical case. This Wyoming-based crypto bank started applying for a master account in 2020, was delayed by the Federal Reserve for over two years, and eventually sued the Federal Reserve. Kraken has also encountered similar issues.

Waller said that many payment companies do not need all the functions of the master account. They do not need to borrow from the Federal Reserve, do not need daylight overdrafts, and only need access to the payment system. Therefore, the Federal Reserve is studying a "slimmed-down" version to provide these companies with basic payment services while controlling risk. Specifically, this account does not pay interest, may have a balance limit, cannot overdraft, cannot borrow, but its approval process will be much faster.

Federal Reserve Governor Waller

What does this proposal mean? Stablecoin issuers, cryptocurrency payment companies can now directly access the Fed's payment system without relying on traditional banks. This will significantly reduce costs and improve efficiency. More importantly, this is the first time the Fed has officially acknowledged these companies as legitimate financial institutions.

Dialogue One: Collision of Traditional Finance and Digital Ecosystem

The first topic of discussion was "The Integration of Traditional Finance and the Digital Asset Ecosystem." The host was Rebecca Redig, Chief Legal Officer of Jito Labs, with Sergei Nazarov, Co-Founder of Chainlink, Jackie Reses, CEO of Lead Bank, Michael Shaulov, CEO of Fireblocks, and Jennifer Back, Global Head of Fund Services and Custody at New York Mellon Bank, sitting on the stage.

From left to right: Rebecca Redig, Chief Legal Officer of Jito Labs; Sergei Nazarov, Co-Founder of Chainlink; Lead Bank CEO Jackie Reses; Fireblocks CEO Michael Shaulov; Jennifer Back, Global Head of Fund Services and Custody at New York Mellon Bank

· Interoperability as the Biggest Obstacle to Integration

Chainlink's Co-Founder Nazarov cut to the chase and stated that interoperability is currently the biggest issue. There is a lack of unified compliance standards, identity verification mechanisms, and accounting frameworks between assets on the blockchain and traditional financial systems. As the cost of creating a new chain decreases, the "fragmentation" of chains is exacerbating, making the need for unified standards more urgent.

He called out to the Fed, stating that the payment system must be able to interoperate with stablecoins and tokenized deposits. He emphasized that the payment field represents the demand side of the digital asset economy, and if the Fed can provide a clear framework for risk management, the U.S. can maintain its leadership in global digital payment innovation.

He pointed out that it was unimaginable a year ago that "regulated DeFi" would be discussed at the Fed, which in itself is a positive trend. Nazarov predicted that in the next 2 to 5 years, a hybrid model will emerge: a "Regulated DeFi Variant," achieved through smart contracts to automate compliance processes.

· Traditional Banks are not yet ready; the core bottleneck is awareness and talent

Lead Bank CEO Leesas believes that even with a blueprint for the convergence of traditional finance and the digital ecosystem, most banks are simply not prepared to handle this integration. Traditional banks lack wallet infrastructure, systems to handle cryptocurrency deposits and withdrawals, and internally, they lack "talent that understands blockchain products."

She further categorized the problem as a gap in cognition and capability, emphasizing that the biggest obstacle is not the technology itself but rather the "knowledge and execution capabilities of the bank's core financial services team." These core teams, due to a lack of understanding and judgment of emerging blockchain products, are unaware of how to effectively regulate or supervise these new businesses.

This lack of readiness is particularly evident on the retail end. Leesas mentioned that although KYC systems for institutions are currently more mature, retail users still struggle to access these tools. This exposes an awkward reality: even if banks are willing to participate, their service capabilities are limited to a few institutional clients, far from widespread adoption.

· Industry Needs a Practical Regulatory and Risk Control Framework

This conversation also touched on AI fraud issues, leading to a discussion on the "irreversibility" of on-chain transactions. Traditional wire transfers can be reversed, but blockchain transactions are final, presenting a significant challenge on how to meet regulatory requirements for reversibility while maintaining on-chain finality. Leesas called on regulators to progress "slow and steady" because "innovation is always great until your own family is scammed."

Fireblocks CEO Michael Shaulov then steered the discussion towards deeper economic and regulatory issues. He pointed out that stablecoins could reshape the credit markets, thereby affecting the Fed's monetary policy. He also highlighted a specific regulatory gray area: placing a bank's "tokenized deposits" on a public blockchain, where the bank's responsibility is still unclear, is a key issue currently hindering bank projects. He called for further research on how digital assets are changing banks' balance sheets and the Fed's role in this transformation.

Lastly, Jennifer Bach from Mellon Bank in New York provided a "wish list," outlining four items that traditional banks hope regulators will prioritize addressing: enabling 24/7 payment systems, establishing technical standards, enhancing fraud detection, and creating a liquidity and redemption framework for stablecoins and tokenized deposits.

Panel Two: The Trouble and Opportunity of Stablecoins

The second panel discussion focused on stablecoins. The host was Kyle Samani, co-founder of Multicoin Capital, and joining him on stage were Paxos CEO Charles Cascarilla, Circle Chairman Jeremy Allaire, Fifth Third Bank CEO Tim Spence, and DolarApp CEO Fernando Tres.

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, Circle Chairman Jeremy Allaire

· Strong Demand and Use Cases for Compliant Stablecoins

In July of this year, the United States passed the "GENIUS Act," which requires stablecoin issuers to hold 100% high-quality reserve assets, mainly in cash and short-term U.S. Treasury bonds. After this act came into effect, the proportion of compliant stablecoins increased from less than 50% at the beginning of the year to 72%. Among them, Circle and Paxos are the biggest beneficiaries. The circulation of USDC reached $65 billion in the second quarter of this year, accounting for 28% of the global market, with a year-on-year growth rate of over 40%.

In terms of use cases, Spence, representing banks, provided the most practical view. He believes that the strongest and most direct use case for stablecoins is "cross-border payments" because it effectively addresses the pain points of traditional settlement delays and forex risks. In contrast, the programmability required by AI agent trading is a longer-term future.

Tres from DolarApp also supplemented from a Latin American perspective, stating that for these countries with unstable local currencies, stablecoins are not speculative tools but a necessary means of preserving value. He reminded the U.S.-centric decision-makers present that the use cases of stablecoins are much broader than they imagine.

· The User Experience Bottleneck of "Dial-Up Internet"

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

He compared today's DeFi and cryptocurrencies to early "dial-up internet," bluntly stating that DeFi and cryptocurrencies have not been fully abstracted yet. He believes that only when blockchain technology is well abstracted and becomes "invisible," will mass adoption occur. "Nobody knows how the mobile phone works... but everyone knows how to use it. Cryptocurrencies, blockchains, stablecoins need to be like that."

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

· Threat to the Banking Credit System

Allaire from Circle and Spence from Fifth Third Bank also participated in the discussion, representing the traditional banking perspective, which in itself is a signal.

Spencer first tried to reshape the identity of banks, proposing to use "ScaledFi" (Scalable Finance) to replace "TradFi" (Traditional Finance), and stating that the bank's "old" identity "is the least interesting thing."

He also pointed out that stablecoins will not deplete the bank's "capital," but will deplete "deposits." The real threat is that if stablecoins are allowed to pay interest (even if disguised as a "reward" similar to Coinbase issuing USDC subsidies), it will pose a significant threat to the formation of bank credit.

The core function of a bank is to take deposits and issue loans (i.e., create credit). If stablecoins, with their flexibility and potential interest, draw away a large amount of deposits, the bank's lending capacity will shrink, thus threatening the entire economic credit system. This is similar to the impact of early Money Market Mutual Funds (MMMFs) on the banking system.

Conversation Three: AI Fantasy and Reality

The third panel discussed the topic of AI. The host was Modern Treasury's CEO, Matt Marcus, and on stage were ARK Invest's CEO, WoodSis, Coinbase's CFO, Alicia Haas, Stripe's AI Director, Emily Sands, and Google Cloud's Web3 Strategy Chief, Chad Weedman.

AI is Entering the "Agent Business" Era

WoodSis predicted that AI-driven "agent payment systems," where AI is shifting from "knowing" to "doing," could make autonomous financial decisions on behalf of users (such as paying bills, shopping, investing). This will bring about significant productivity gains. She asserted, "We believe that with such breakthroughs and productivity gains, real GDP growth over the next five years could accelerate to 7% or higher."

ARK Invest CEO WoodSis

Additionally, WoodSis also grouped AI and blockchain as the two most important platforms driving this round of productivity surge. She reflected on U.S. regulation, believing that early hostility towards blockchain was actually a blessing in disguise as it forced policymakers to rethink and sounded the alarm for the U.S. to reclaim its leadership in the "next-generation Internet."

Stripe's Emily Sands emphasized from a practical standpoint that although AI agent shopping use cases (like one-click checkout through ChatGPT) have emerged, mitigating fraud risks remains "one of the most pressing challenges." Merchants must clearly define how their systems interact with these AI agents to prevent new forms of fraud.

When it comes to enhancing financial efficiency, AI has also shown remarkable results. Alyse Killeen from Coinbase stated that by the end of the year, Coinbase expects half of its code to be written by AI robots, almost doubling its R&D workforce. In terms of financial reconciliation, reconciling crypto transactions takes one person half a day, whereas reconciling an equivalent amount of fiat transactions would require 15 people working for three days, demonstrating how AI and blockchain technology have significantly reduced operational costs.

· Stablecoins: The Financial Infrastructure AI Agents Desperately Need

The second consensus reached was that AI agents require a new, native financial tool, with stablecoins being a natural solution.

Richard Weedman from Google Cloud explained that AI agents cannot open traditional bank accounts like humans, but they can have a crypto wallet. Stablecoins provide the perfect solution for this, offering programmability and being especially suited for AI-driven automated microtransactions (e.g., two-cent payments) and machine-to-machine (M2M) settlements.

Alyse Killeen from Coinbase further elaborated that the programmability of stablecoins, along with the increasingly clear regulatory environment, makes them an ideal choice for AI-driven transactions. The rapid monetization speed of AI companies (with Annual Recurring Revenue growth rates 3-4 times that of SaaS companies) also demands that payment infrastructure must support new payment methods like stablecoins.

Moreover, stablecoins and blockchain technology provide new anti-fraud tools, such as leveraging on-chain transaction visibility to train AI fraud models, address whitelisting/blacklisting mechanisms, and transaction finality (merchants have no chargeback risk).

Dialogue Four: Everything On-Chain

The fourth panel discussed the tokenization of assets. Moderated by Colleen Sullivan, Managing Director of Brevan Howard Digital, the panel featured Jennifer Johnson, CEO of Franklin Templeton, Don Wilson, CEO of DRW, Rob Gutmann, COO of Blackrock, and Kara Kennedy, Co-Head of JPMorgan Kinexys.

From left to right: BHD's Colleen Sullivan, Franklin Templeton CEO Jennifer Johnson, Blackrock COO Rob Gutmann, JPMorgan Kinexys Co-Head Kara Kennedy

·On-Chain of Traditional Financial Assets is Only a Matter of Time

Attendees unanimously agreed that asset tokenization is an irreversible trend. BlackRock COO Goodshteyn made the most direct statement: "It's not a question of whether it will happen, but when." He pointed out that digital wallets already hold around $4.5 trillion, and as investors can directly hold tokenized stocks, bonds, and funds through blockchain portfolios, this number will continue to rise.

DRW's Wilson made a more specific prediction, believing that within the next five years, every actively traded financial asset will transact on-chain. Franklin Templeton's Johnson likened this to historical technological shifts, summarizing, "Technology adoption always happens more slowly than people expect, and then suddenly takes off."

Tokenization is not a distant vision but a practical reality. Currently, traditional finance and digital assets are merging bidirectionally: traditional assets (such as stocks, government bonds) are being tokenized and used in DeFi, while digital assets (such as stablecoins and tokenized money market funds) are also integrating into traditional markets.

Various institutions have already been actively positioning themselves. Johnson revealed that Franklin Templeton has launched a native on-chain money market fund (MMF) that can calculate intraday returns down to the second. Kennedy shared progress from JPMorgan Kinexys, including using tokenized U.S. treasuries for minute-level overnight repo transactions and conducting a proof of concept for JPMD deposit tokens. Wilson also confirmed that DRW is already involved in on-chain U.S. treasury repo transactions.

·Never Replicate the Cryptonative "Bad Practices"

Despite the vast opportunities, traditional financial giants maintain a high level of risk aversion. They emphasize that tokenized assets should not be interchangeable with stablecoins, deposit tokens, and the market must assess different assets' collateral "haircuts" based on credit quality, liquidity, and transparency.

BlackRock's Goodshteyn warned that one must beware of many so-called "tokens" that are actually packaged complex "structured products," as not fully understanding these structures poses a danger.

DRW's Wilson sharply pointed out serious issues exposed by the recent crypto market flash crash (October 11th): unreliable oracles and exchange platforms engaging in internal settlement for profit, halting user deposits, etc., due to conflicts of interest. He strongly stated that these are "bad practices" from the cryptonative space that traditional finance should not replicate before establishing strict infrastructure oversight and market quality standards. Additionally, for compliance (AML/KYC) requirements, regulated banks must use permissioned distributed ledgers (Permissioned DLT).

Race to Digital Finance: Who is Winning?

The signal of this conference is crystal clear: the Federal Reserve no longer sees the crypto industry as a threat, but as a partner.

Over the past year or two, the global digital currency competition has intensified. The digital yuan has made rapid progress in cross-border payments, with the transaction volume expected to reach $870 billion by 2024. The EU's MiCA regulation has come into effect, and regulatory frameworks for crypto in Singapore and Hong Kong are being refined. The U.S. is feeling the pressure.

However, the U.S.'s approach is different. It is not pursuing a government-led central bank digital currency (CBDC) but embracing innovation from the private sector. The recently passed "Anti-CBDC Surveillance Act" explicitly prohibits the Federal Reserve from issuing a digital dollar. The U.S.'s logic is to let companies like Circle and Coinbase handle stablecoins, let BlackRock and JPMorgan Chase tokenize assets, and have the government focus solely on setting rules and regulations.

The most direct beneficiaries are compliant stablecoin issuers, with Circle and Paxos seeing a significant increase in valuation over the past few months. Traditional financial institutions are also ramping up their involvement, with JPMorgan Chase's JPM Coin processing over $300 billion in transactions. Citigroup and Wells Fargo are testing digital asset custody platforms.

Data shows that 46% of U.S. banks now offer cryptocurrency-related services to customers, compared to only 18% three years ago. Market response has been evident. Since the Fed signaled regulatory easing in April, the stablecoin market has grown from over $200 billion at the beginning 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 surveillance of every transaction, which is hard to accept in America's political culture. In contrast, privately-led stablecoins can maintain the global status of the U.S. dollar while avoiding controversies over government overreach.

However, this strategy also carries risks. Private stablecoin issuers may form new monopolies, and their collapse could pose systemic risks. Finding a balance between encouraging innovation and mitigating risks is the challenge facing U.S. regulators.

In his closing remarks, Waller stated that consumers do not need to understand these technologies, but ensuring their safety and efficiency is everyone's responsibility. While this may sound like a bureaucratic statement, the message it conveys is clear: the Federal Reserve has decided to integrate the crypto industry into the mainstream financial system.

This conference did not release any policy documents or make any decisions. However, the signal it sent is more powerful than any official statement. An era of dialogue has begun, and the era of confrontation has ended.