Intraday Liquidity Facilities: A Pragmatic Framework for Stablecoin Infrastructure

In March 2023, the collapse of three regional banks sent shockwaves through the stablecoin ecosystem. Circle's USDC briefly de-pegged after disclosing $3.3 billion in uninsured deposits at Silicon Valley Bank. Tether faced renewed scrutiny over its banking relationships. PayPal's newly launched stablecoin, PYUSD, suddenly looked more vulnerable than its backers had hoped. Within days, tens of billions of dollars fled from dollar-backed stablecoins into bitcoin, ether, and self-custodied wallets.

The crisis exposed a fundamental weakness in how digital dollars are built today. Stablecoins are only as stable as the banks that hold their reserves. And when those banks fail, even the most transparently audited, fully reserved stablecoins become suspect.

This wasn't the first time. In 2018, when Metropolitan Commercial Bank and other institutions began quietly de-banking crypto companies, exchanges scrambled to find alternatives. Signature Bank stepped in, offering real-time settlement via its Signet platform. It became a lifeline for the industry. Then, in March 2023, Signature was shut down by regulators. Silvergate Capital, another critical institution that provided 24/7 dollar settlement through its Silvergate Exchange Network, had collapsed just days earlier.

The message was clear: relying on a handful of commercial banks for digital asset settlement creates systemic chokepoints. When those banks close or fail, the entire ecosystem freezes.

In our previous piece on narrow banking and stablecoins, we explored whether institutions serving digital asset markets should have direct access to Federal Reserve master accounts. The debate has raged for years. Custodia Bank litigated the question in federal court. The Narrow Bank project fought similar battles a decade ago. Anchorage Digital secured a federal charter but still operates within traditional banking constraints. The Fed has consistently resisted granting master accounts to institutions that look too much like narrow banks, fearing deposit flight from community and regional lenders.

But there's a middle path that's received far less attention. One that addresses the Fed's core concerns while unlocking the infrastructure that stablecoins, tokenized securities, and programmable finance desperately need.

What if we created limited-purpose charter institutions that could hold unlimited balances from the free market, but only for intraday settlement? Institutions that must wind down every single account to zero by the end of each business day, returning funds to traditional banks where they can be lent into the real economy.

These wouldn't be narrow banks in the traditional sense. They'd be short-term liquidity facilities designed specifically for the settlement needs of digital finance. And if structured properly, they could become the missing piece of infrastructure that lets the United States lead in stablecoin innovation rather than cede the field to offshore issuers and unregulated platforms.

Why Intraday Matters: The Plumbing Problem

To understand why this model works, you need to understand what stablecoins actually do. A stablecoin issuer like Circle doesn't just hold dollars in a vault. Every day, it processes thousands of minting and redemption requests. A trader on Coinbase wants to convert $10 million into USDC. An institutional client in Singapore wants to redeem $50 million USDC for wire transfer. A DeFi protocol needs to rebalance $100 million in reserves across multiple blockchains.

Each of these operations requires moving actual dollars through the banking system. And that movement happens slowly. Wire transfers take hours or days to settle. ACH transactions can take three business days. Even "instant" payment systems like FedNow have limits on transaction size and counterparty availability. This creates massive friction.

Stablecoin issuers need intraday liquidity. They need to be able to receive $500 million at 9am, deploy it across multiple blockchain rails by noon, and settle redemptions back into dollars by 3pm. Traditional commercial banks can't handle this flow efficiently. They're built for fractional reserve lending, not real-time payment processing at scale.

This is where Signature's Signet platform was revolutionary. It allowed crypto firms to move dollars 24/7, instantly, between accounts. It wasn't perfect—it still relied on a single commercial bank's balance sheet—but it demonstrated what's possible when settlement infrastructure is designed for digital assets.

When Signature closed, the industry lost that capability. Today, stablecoin issuers are back to juggling relationships with multiple commercial banks, managing intraday credit lines, and dealing with the operational complexity of a fragmented correspondent banking network.

An intraday limited-purpose charter would solve this. It would provide a single, neutral, federally supervised facility where stablecoin issuers, exchanges, and tokenized asset platforms could settle in central bank money with instant finality.

The Mechanics: How Intraday-Only Institutions Would Work

Here's how the model would function in practice.

A federally chartered limited-purpose institution—let's call it an Intraday Liquidity Facility, or ILF—receives approval from the OCC and is granted a Federal Reserve master account. This institution is subject to strict regulatory oversight but operates under a unique set of rules designed to prevent systemic risk while enabling market function.

Every morning, participating firms can deposit funds into their accounts at the ILF. These deposits are held as reserves at the Federal Reserve. The ILF doesn't lend, doesn't invest, doesn't engage in maturity transformation. It simply facilitates intraday movement of dollars with zero credit risk.

During the day, a stablecoin issuer can mint $200 million in tokens backed by reserves at the ILF. Those reserves remain at the Fed. The tokens are issued on-chain. Later that same day, when redemption requests come in, the issuer burns the tokens and wires dollars back to the requesting parties. All settlement happens in real-time because the ILF has direct access to the Federal Reserve's payment systems.

But here's the critical constraint: by 6pm Eastern every business day, all balances must be reduced to zero. Funds are automatically swept back to the depositor's traditional commercial bank account. The ILF cannot hold overnight deposits. It cannot accumulate customer balances that would otherwise sit in regional banks. It exists purely to facilitate intraday liquidity.

This design addresses the Fed's primary objection to narrow banking. There is no deposit flight risk because there are no overnight deposits. A community bank in Ohio doesn't lose funding because its customer moved $10 million to an ILF. That $10 million is still at the community bank when the sun sets. It's only at the ILF during business hours when it's actively being used for settlement.

At the same time, this model provides the infrastructure that digital finance needs. Stablecoin issuers can process billions of dollars in daily flow without relying on fragile commercial banks. Exchanges can settle trades instantly in central bank money. Tokenized securities platforms can clear transactions without T+2 delays. And all of it happens under federal supervision with complete transparency.

Precedent: The Fed Already Does This

This isn't a radical idea. The Federal Reserve already operates intraday credit facilities for traditional financial institutions. Banks routinely borrow from the Fed during the day to manage payment flows, then repay by the close of business. The Fedwire system processes $4 trillion in payments daily using exactly this model—intraday liquidity that settles before the end of each session.

What we're proposing is extending that same principle to institutions serving digital asset markets. Instead of forcing stablecoin issuers and crypto platforms to route everything through a shrinking pool of commercial bank intermediaries, let them access Fed infrastructure directly, but only for intraday use.

The guardrails are simple. Charter requirements ensure only well-capitalized, professionally managed institutions can operate as ILFs. The OCC provides ongoing supervision. The Fed monitors for systemic risk. And the intraday-only constraint prevents these institutions from becoming deposit-taking competitors to traditional banks.

Critics might argue this creates a two-tier system where some firms get preferential access to Fed services. But we already have that. JPMorgan Chase has a master account. Community banks have master accounts. The question isn't whether we create tiers—it's whether we extend access to institutions serving markets that are critical to America's competitiveness in digital finance.

Real-World Use Cases: Who Benefits?

The most obvious beneficiaries are stablecoin issuers. Circle, which manages over $30 billion in USDC reserves, would no longer need to worry about commercial bank failures threatening its peg. After the SVB collapse, Circle moved reserves to BNY Mellon and other larger institutions, but concentration risk remains. An ILF would provide a neutral, risk-free alternative for managing intraday minting and redemption flows.

Tether, despite its controversial history, manages over $120 billion in reserves. If even a fraction of that flow moved through an ILF for intraday settlement, it would represent one of the highest-volume payment systems in the world. More importantly, it would subject that flow to federal oversight in a way that offshore arrangements never can.

PayPal launched PYUSD in August 2023, backed by dollar reserves held at U.S. banks. But PayPal knows the risks. It saw what happened to Circle. An ILF would let PayPal scale PYUSD without worrying that a bank run could de-peg the token overnight.

Beyond stablecoins, crypto exchanges would benefit enormously. Coinbase, Kraken, and Gemini all struggled after Signature and Silvergate collapsed. They had to establish new banking relationships, often with institutions less familiar with crypto operations. Compliance burdens increased. Settlement times slowed. An ILF would give these exchanges a stable, permanent venue for dollar settlement without depending on the whims of commercial bank risk committees.

Tokenized securities platforms like tZERO, which enables trading of digital securities, could finally compete with traditional market infrastructure. Right now, settling a tokenized stock trade still requires waiting for traditional bank wires. With an ILF, settlement could happen in seconds with instant finality.

Cross-chain bridges and DeFi protocols would gain access to institutional-grade dollar settlement. Projects like Maker, Aave, and Compound, which collectively manage billions in stablecoin liquidity, could integrate with ILF-backed infrastructure to reduce counterparty risk and improve capital efficiency.

Even traditional fintech companies serving crypto businesses—Stripe, Square, and others—would benefit. Right now, these platforms have to navigate a patchwork of banking relationships and compliance frameworks. An ILF would provide a single, federally supervised on-ramp for digital asset payments.

Addressing the Obvious Concerns

The Federal Reserve will raise objections. They always do. The most predictable critique is that intraday facilities could still be used to circumvent banking regulations. A bad actor might cycle funds through an ILF repeatedly, using it as a de facto banking service without proper oversight.

But this concern is manageable. Charter standards can include strict transaction limits, know-your-customer requirements, and suspicious activity monitoring. The Bank Secrecy Act already applies to money services businesses. ILFs would be subject to even stricter scrutiny because of their direct Fed access.

Another objection is that intraday facilities might still compete with commercial banks for deposits. If a stablecoin issuer can hold reserves at an ILF during business hours, why would it ever keep money in a commercial bank overnight?

The answer is simple: because ILFs wouldn't offer interest on reserves, wouldn't provide credit facilities, and wouldn't handle the myriad other banking services that stablecoin issuers need. A company like Circle still needs traditional banking relationships for payroll, vendor payments, treasury management, and long-term reserve allocation. An ILF would only handle the high-velocity settlement flows that commercial banks struggle to support.

Finally, some will argue that this creates moral hazard. If digital asset firms know they can access Fed liquidity, won't they take on more risk?

This argument misunderstands the proposal. ILFs aren't lenders. They don't extend credit. They don't bail out failing companies. They simply provide a venue for settling transactions in central bank money. If a stablecoin issuer mismanages reserves or engages in fraud, it still fails. The ILF doesn't change that. It just ensures that legitimate firms have access to stable settlement infrastructure.

The Trump Administration and the Window of Opportunity

We're at a unique moment in policy history. The Trump administration has signaled openness to digital asset innovation in ways previous administrations have not. President Trump has spoken publicly about the need for America to lead in cryptocurrency and blockchain technology. Key advisors and potential cabinet members have backgrounds in fintech and digital assets. The Office of the Comptroller of the Currency, which grants federal bank charters, is likely to be led by individuals sympathetic to modernizing financial infrastructure.

This creates an opening. For years, narrow banking proposals have been dead on arrival because regulators feared the political and systemic risks. But an intraday-only model threads the needle. It provides the infrastructure that digital asset markets need without threatening the deposit base of traditional banks. It keeps dollar settlement onshore under federal supervision rather than pushing it to offshore stablecoin issuers and unregulated platforms.

If the Trump administration and the OCC move quickly, they could establish a framework for ILFs within the first year of the new term. This would send a powerful signal to global markets: the United States is serious about leading in digital finance. It would attract stablecoin issuers, crypto exchanges, and tokenized asset platforms to operate under U.S. jurisdiction rather than fleeing to the Cayman Islands, Switzerland, or Singapore.

More importantly, it would reduce systemic risk. Right now, the collapse of a single commercial bank can destabilize the entire stablecoin ecosystem. We've seen it happen twice in five years. An ILF framework would create redundancy and resilience. If one commercial bank closes, stablecoin flows can continue uninterrupted because the critical settlement layer operates independently.

The Fed will resist. They always do when master account access is on the table. But the political environment is different now. Public support for digital assets is higher than ever. Congressional interest in stablecoin legislation is bipartisan. And the risks of inaction are becoming clearer as offshore stablecoin volume continues to grow at the expense of U.S.-based issuers.

The Trump administration has the opportunity to push the Fed to adopt this framework. Not by executive order—master account policy is legally the Fed's domain—but through public pressure, regulatory coordination, and strategic use of the OCC's chartering authority. If the OCC signals that it will grant charters to intraday-only ILFs, and if the administration makes clear that it expects the Fed to grant corresponding master accounts, the Fed will face a choice: adapt to the reality of digital finance, or be seen as the obstacle preventing American leadership in a critical growth sector.

Case Study: What If Signature Had Been an ILF?

Let's return to March 2023. Signature Bank is facing a classic bank run. Depositors, spooked by SVB's failure and fearful of contagion, begin withdrawing funds. Within 48 hours, Signature loses $10 billion in deposits. Regulators step in and shut the bank down.

But what if Signature's Signet platform had been operating as a separate, federally chartered ILF instead of as a service inside a commercial bank?

The run on Signature would still have happened. The commercial bank would still have failed. But Signet—the ILF—would have been unaffected. Why? Because Signet held no overnight deposits. At the close of business each day, all funds swept back to depositors' traditional bank accounts. There was nothing to run on. The liquidity facility was simply a conduit for intraday settlement, not a repository of customer funds.

Crypto firms that relied on Signet would have experienced zero disruption. Coinbase, Kraken, and others would have continued settling trades in real-time. Stablecoin issuers would have processed redemptions without delay. The broader panic that swept through digital asset markets might never have materialized.

This is the power of separating settlement infrastructure from deposit-taking institutions. When you isolate the critical plumbing from the credit and maturity transformation functions that make banks vulnerable, you create resilience. And resilience is exactly what digital finance needs.

How CapSign and M0 Fit Into This Vision

At CapSign, we're building infrastructure for tokenized equity, corporate governance, and digital securities. Our platform enables companies to issue programmable shares, manage cap tables on-chain, and facilitate secondary trading of digital assets. But all of this ultimately depends on the ability to settle transactions in dollars.

Right now, we support both traditional banking through our Bridge integration (allowing wire transfers and ACH) and native USDC settlement on-chain. While native USDC provides instant settlement with reduced counterparty risk, it still ultimately depends on the underlying banking relationships of stablecoin issuers like Circle. If we could integrate with an ILF, settlement would be instant and risk-free regardless of payment method. A secondary market transaction could clear in seconds with true finality, not days. Token issuance could happen in real-time as soon as payment is confirmed. Redemptions would be immediate with zero reliance on commercial bank intermediaries.

This isn't just about speed. It's about unlocking liquidity. Right now, institutional investors are hesitant to participate in tokenized securities markets because settlement is fragmented and uncertain. They don't trust that they'll receive dollars instantly when they sell. An ILF changes that calculus. It provides the same settlement finality they expect in traditional equities markets, but on blockchain rails with all the programmability and composability that entails.

For M0 Labs, the benefits are even more direct. M0 is building infrastructure for permissionless, decentralized stablecoins. Their protocol enables anyone to mint dollar-backed tokens without relying on centralized issuers like Circle or Tether. But M0 still faces the same fundamental challenge: where do the dollars come from, and how do they settle?

If M0 could integrate with an ILF, it would unlock a new paradigm. Participants in the M0 ecosystem could deposit dollars into an ILF during business hours, mint M tokens backed by Fed reserves, and deploy those tokens across DeFi protocols. At the end of the day, when tokens are burned and redeemed, dollars flow back through the ILF to traditional bank accounts. The entire cycle happens under federal supervision with zero credit risk.

This is the missing piece for decentralized stablecoin infrastructure. Without access to Fed settlement, projects like M0 are forced to rely on commercial bank intermediaries or offshore arrangements. Both introduce friction and risk. An ILF framework would level the playing field, allowing decentralized protocols to compete with centralized issuers on the basis of technology and governance rather than banking relationships.

Both CapSign and M0 represent the future of programmable finance. But that future depends on infrastructure—specifically, dollar settlement infrastructure that's fast, safe, and accessible to digital-native platforms. Intraday liquidity facilities would provide exactly that.

The Path Forward

The policy window is open. The Trump administration has an opportunity to reshape financial infrastructure in ways that will define American competitiveness for decades. Stablecoins are not going away. Tokenized assets are not a fad. Digital securities, programmable equity, and blockchain-based settlement are the future of capital markets.

The question is whether that future is built onshore under U.S. supervision, or offshore in jurisdictions with weaker oversight and higher systemic risk.

Intraday limited-purpose charter institutions offer a pragmatic path. They address the Fed's core concerns about deposit flight and systemic concentration. They provide the infrastructure that digital asset markets need to scale. They bring stablecoin flows under federal supervision rather than pushing them to the Cayman Islands. And they position the United States as a leader in financial innovation rather than a regulator playing catch-up.

The Office of the Comptroller of the Currency should move quickly to establish a chartering framework for ILFs. The Federal Reserve should grant master accounts to qualified institutions operating under this model. Congress should provide legislative clarity that removes legal ambiguity and protects these institutions from future regulatory reversal.

And the Trump administration should make clear that financial infrastructure modernization is a priority—not just for the digital asset industry, but for the competitiveness of the American economy as a whole.

We've seen what happens when critical infrastructure fails. We've seen the contagion that spreads when stablecoin reserves are held at fragile commercial banks. We've seen the disruption when exchanges lose access to settlement services.

We don't have to keep making the same mistakes. We have a chance to build something better. Something that balances innovation with stability, competition with oversight, and private enterprise with public good.

The question is whether we'll take it.