Quotes"After the #MtGox hack, I realized that to bring #bitcoin mainstream, we'd need professional exchanges that can interface w/ regulators & get everyone comfortable and educated." ~@jespow, co-founder & CEO @krakenfx Click To Tweet "We try to find a compromise where we can preserve financial privacy… People respect us for holding regulators and law enforcement to some basic level of decency." ~@jespow, co-founder & CEO @krakenfx Click To Tweet "Regulatory certainty could be an upgrade or a downgrade. There's been some horrible regulation. It's better to let the free market flow & get people educated. The market will find a way." ~@jespow, co-founder & CEO @krakenfx Click To Tweet
Welcome to this conversation with Jesse Powell, co-founder and CEO of Kraken, a top-10 crypto exchange with an “A” transparency rating on Nomics.com and one of the first legitimate enterprises in the space. Jesse started Kraken after the 2011 Mt. Gox hack. He felt that for Bitcoin to go mainstream, exchanges would have to professionalize.
The conversation is split into 3 chapters:
- Chapter 1: The state of crypto exchanges in 2020
- Chapter 2: Behind the scenes at Kraken: services, acquisitions & relationship with regulators
- Chapter 3: How Kraken differentiates itself, upcoming releases & Jesse’s views on NFTs
Topics Discussed In This Episode
- Starting Kraken in response to the 2011 Mt. Gox hack
- The connection between Bitcoin and Magic: The Gathering
- How Kraken got its name and aesthetic
- The evolution of crypto exchanges
- Why Kraken never launched an exchange token
- The challenge of finding people who can grow with a company
- Kraken’s long list of services and acquisitions
- Kraken’s record of standing up to regulators
- Kraken’s revenue streams
- Kraken’s upcoming retail mobile app & simplified desktop site
- Giving whales a chance to pay extra for top-tier service
- Jesse’s views on NFTs and other collectibles
Links Relevant To This Episode
- Nomics’ Fully Customizable Daily Crypto Newsletter
- Clay Collins
- Jesse Powell
- Nomics’ Exchange Transparency Ratings
- Mt. Gox
- Bitcoin (BTC)
- Mark Karpelès
- Roger Ver
- Magic: The Gathering
- Jed McCaleb
- Ethereum (ETH)
- Kraken Futures
- Circle Trade
- Bit Trade
- Dan Held
- Pete Rizzo
- Gods Unchained
- Handshake (HNS)
- Tether (USDT)
Clay: Welcome to Flippening, the first and original podcast for full time, professional, and institutional crypto investors. I’m your host, Clay Collins. Each week, we discuss the cryptocurrency economy, new investment strategies for maximizing returns, and stories from the frontlines of financial disruption. Go to flippening.com to join our newsletter for cryptocurrency investors, and find out just why this podcast is called Flippening.
Clay Collins is the CEO of Nomics. All opinions expressed by Clay and podcast guests are solely their own opinion, [00:00:30] and do not reflect the opinion of Nomics or any other company. This podcast is for informational and entertainment purposes only and should not be relied upon as the basis for investment decisions.
Mike: Hi, this is Mike, producer of the Flippening podcast. I’d like to welcome you to this conversation between Clay Collins and Jesse Powell, co-founder and CEO of Kraken, a top 10 crypto exchange with an A transparency rating on Nomics and one of the first legitimate crypto enterprises. Jesse started Kraken in response to the 2011 [00:01:00] Mt. Gox hack. He felt that for Bitcoin to go mainstream, exchanges would have to professionalize.
The conversation is split into 3 chapters. Chapter 1 considers the current state of crypto exchanges in 2020. Chapter 2 is a behind-the-scenes look at Kraken covering services offered, recent acquisitions, and relationships with regulators. In Chapter 3, Jesse explains how Kraken differentiates itself and previews some upcoming releases. He also shares his views on NFTs and DeFi.
Transcript and show notes for this episode are available at [00:01:30] flippening.com/kraken. That’s flippening.com/kraken.
And now, before we get started, here’s Clay with a word from our friends and sponsors.
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Mike: Okay, back to our regularly scheduled program. Here’s Clay’s conversation with Jesse Powell, co-founder & CEO of Kraken. Enjoy.
Clay: Jesse can you give us a little background on yourself and the origin story of your involvement [00:05:00] in the crypto asset space?
Jesse: First of all, thanks for having me on the show. It’s long overdue. Glad we could finally make the timing work out. We got started with Kraken in July of 2011, which was just after I had an experience with Mt. Gox who had gotten hacked. It was basically the only exchange at the time. They had like 99% of the volume. They had gotten hacked in June of 2011. I went out to Japan to help them out [00:05:30] for about a week and a half to get back on their feet.
During that time, I came to realize that we ought to have more than one exchange in this ecosystem and price discovery’s incredibly important. In order to really bring Bitcoin into the mainstream, we’re going to need really serious, reliable, and professional exchanges who can interface with regulators, who can interface with banks, and get everybody comfortable and [00:06:00] educated. That was really what was going to be necessary to bring people across from the legacy financial system into the new world of crypto.
We were primarily interested really in helping crypto grow. Of course, we saw a business opportunity there but we wanted to really do it the right way, to have longevity as a business, and to serve the community of people that would be coming over the next few decades. At the time, we probably thought yeah, [00:06:30] everyone’s going to be on Bitcoin in the next three years and the world’s going to be in a different place. In hindsight, we were way off in that prediction, and it’s probably going to be more like a 20-year story than a 3-year story.
We wanted to do it the right way and build that bridge for people. We got started on building Kraken in July 2011. It’s obviously been a long road. We’re almost [00:07:00] nine years going now. A lot happened in that time. The space was a natural fit for me and for my co-founder because we were both coming from the virtual goods world in video games where we had been selling virtual items and currencies for online games for the last 10 years before that.
Clay: Just a couple of follow-up questions on what you just said. When you went to Japan to help out, presumably Mark Karpelès with Mt. Gox, [00:07:30] was that as an engineer? You wrote code, right? I don’t know if you still deploy into production on Kraken, but—
Jesse: No, thank God.
Clay: You have an engineering background?
Jesse: Yeah, some. I would say a very light engineering background. I haven’t really been programming for production business stuff since the early 2000s. Since then, I’ve pretty much been on the business product side of things. [00:08:00] I definitely did not touch any of the code at Mt. Gox I primarily went out there to help on the business operations side. I wrote the press release for Mt. Gox for that incident, helped hire a bunch of people, and answered a bunch of support tickets. Basically, I was trying to support Mark in any way possible so that he could focus on the code and get the site back online.
Clay: Did you have a formal business relationship with him or you thought this was the best thing to do for your [00:08:30] Bitcoin holdings and for the space in general and you were volunteering?
Jesse: I didn’t have any personal relationship with Mark. Mark Gox was basically the only exchange that was around then. I was trading there, a bunch of my friends were trading there, and Roger Ver was trading there. Roger Ver happened to live just a few blocks away from Gox at the time all this happened. He went over to find out what was going on and then that’s when he called me up and was like, “Hey, they really need some help. Can you come out?”
[00:09:00] Roger and I go back to when we were teenagers playing Magic: The Gathering together. I’ve probably known him since I was 16 or something like, so 25, I don’t even know how old I am. I’m living in Bitcoin years now. Twenty plus years I’ve known Roger. I was on the next plane to Japan when he called me up. We kind of saw [00:09:30] ourselves as this team that was going in.
Basically, everyone that we were close to at the time was in Bitcoin so it was a big deal. Everyone was worried about what’s happening with our money? The Bitcoin exchange is offline. I can’t get my stuff I. don’t know what the price is. We felt like we had a lot of weight on us to help Gox, the ecosystem, all of the people that we had referred to Bitcoin at the time.
Clay: It seems like there’s definitely this [00:10:00] Magic: The Gathering overlap with the original Bitcoin community. You mentioned Mark Karpelès, obviously, was into it, you are, and you said Roger Ver was that’s how you knew him as a teenager. Is that just limited to that circle or was there this general overlap in the early days between Magic: The Gathering enthusiasts and Bitcoin? Was there a lot going on there between those communities?
Jesse: I think this is just a coincidental correlation. [00:10:30] Jed McCaleb also was a big Magic player who is the founder of Mt. Gox. There are a lot of guys. I think it’s just you’re a nerdy computer guy, you play Magic, and for some reason, Bitcoin is naturally appealing. I think it was something there like if you played Magic, you had some other things about you that caused you to be interested in Bitcoin. A lot of early Bitcoiners happened to have a [00:11:00] history of playing Magic: The Gathering.
Clay: It’s interesting to look at your LinkedIn profile—Philosophy, Ethics & Law from Cal State Sacramento, a bunch of art and gaming related things, and then now you’re running a financial exchange. It’s interesting to explore that path. Was the domain name kraken.com purchased for the exchange, or was that something that you had had in your back pocket for a while like mtgox.com [00:11:30] that you just happened to whip out when you decided you want to go down this path?
Jesse: I had it in my back pocket for a long time. I don’t even remember when I bought it, but I have been a domain hoarder for a long time. That’s one of the original digital goods that actually appreciated in value. You could think of them as NFTs. I’ve been collecting domains. People actually have [00:12:00] traded domains for other assets as they would World of Warcraft gold. It sort of fits in the same bucket with the virtual goods business. I’ve been interested in domains for a long time.
I bought Kraken. I’ve got 1000 plus other domains. I bought Kraken a long time ago and I thought like one day I’m going to use this for something really cool. I don’t know what it is. When we got to try to figure out what the name for the exchange should be, [00:12:30] I thought of it, and it seemed to fit perfectly in my mind because it’s got all the hallmarks of a great brand. It’s short, it’s fun, and it’s easy to say. Everyone knows how to spell it. It’s metaphorically got all of these connections to markets. When we talk about markets we use words like liquidity, depth, whales, and sharks. Being nautically themed, it fit that as well. [00:13:00] It just seemed perfect in my mind and so we went with it.
Clay: I think it was a smart choice. One of my favorite things about Kraken really is the branding component. There are so many brands in the space that it’s like coin this or block that. There are basically three to four words that have made good chains that have made their way into the names of all of these brands. You guys not only went in a different direction but I also think that [00:13:30] visually, what you’ve done with your website, like these purples and pinks, it’s a highly differentiated brand. I think it’s one of the most highly-differentiated brands in the space. Is that something that you set out to intentionally do, or did that just organically flow?
Jesse: It was very intentional. When we were picking the name for Kraken, it was the same situation with these like four words that were in 95% of all of the companies’ names. It was just like we can’t be another [00:14:00] bit, block, or whatever. And who knows what we’re going to do with this company? It could be that for some reason, Bitcoin is outlawed tomorrow and we got to do something else, we got to pivot to going back to sell virtual items, doing Forex trading, or stock trading.
We were building this asset-agnostic trading platform, and I didn’t want to pigeonhole us into just being like a [00:14:30] crypto company because I felt like in the long run, we were going to need to expand beyond crypto. In the short term, anything could happen. We might need to switch gears. That’s why we didn’t go with any of those names.
As far as the design, the aesthetics, or the artwork, art is something I’ve been interested in for a long time. It’s fun to use it. I love graphic novels. I love being able to tell a [00:15:00] story with pictures. I think that financial services companies are super boring. I wanted to try to do something different. Hopefully, it’s appreciated. I think it’s going to be an evolving process. Maybe we’ll change the art up once a year or something like that, have a completely different aesthetic, But I wanted to find a way to incorporate more art and just have kind of like a less sterile [00:15:30] environment for the service.
Clay: Let’s transition to chapter one, which is about the current state of the exchange ecosystem. One of these people who have been around long enough to actually comment pretty intelligently or very intelligently about the arc of the space and it seems like at the very beginning, that job number one was like let’s just have a two-sided marketplace and facilitate [00:16:00] price discovery, let’s make sure we’re secure. How would you describe the evolution of the exchange space since you started observing it? What are some of the notable major evolutions that stand out for you where you were like hey, our entire business is changing because of this?
Jesse: Yeah. We’re getting pretty far along in the evolutionary process. First, we just had spots and then an [00:16:30] exchange called Bitcoinica introduced margin trading. It’s probably BitMax that first introduced futures and Deribit’s got options now. We’re getting further along. There’s still other stuff to be explored. DEXes are doing other kinds of crazy things. There’s gambling, it’s just explicit gambling and prediction markets on DEXes.
[00:17:00] The ecosystem is filling out. You will see more consolidation because it’s really like a network effects kind of business. You can build a moat around liquidity around a user base. To your point about doing everything at the same time, financial services, generally, the large ones are doing everything. It’s this [00:17:30] ecosystem play where you don’t want to give people a reason to go to another service. If whatever exchange B is doing everything you’re doing but plus one thing, then someone conceivably would move their entire portfolio off of your platform onto exchange B. Then you’ve lost not just whatever the spot exchange business, custody business, or whatever but you’ve lost everything to this other [00:18:00] guy.
You see that happen with tokens as well. There’s a token listing like a defensive play where maybe you don’t actually want to support this token but you have enough people saying hey, I’m going to move my whole portfolio and my whole book to this other exchange if you don’t list this one token. You’ll see basically everyone converging on a very similar feature set. Maybe [00:18:30] competition comes down to, I don’t know, execution, the interface. Maybe even just marketing and brand or customer service.
Clay: It’s been interesting to watch it evolve. It seems like there’s definitely different paths you could go down. You could go down kind of a very Bitcoin-focused path that’s just focused on providing services on banking-like services on top of Bitcoin and going really deep versus trying to add every [00:19:00] new asset that comes up that might have a short life. If you’re the first person to list it and people really want that asset, it’s probably going to drive new account growth. Do you look at that in your analytics? Have you found instances where simply listing a coin drives a bunch of new users to sign up particularly just to trade that coin and end up staying? Is that a valid exchange growth strategy?
Jesse: Yeah, for sure. Especially if it’s a token that’s not listed anywhere else yet. [00:19:30] There’s a big first-mover advantage in listing coins. However, people can move off again over time. If you don’t keep up, they might switch again to another exchange that listed the one thing that you didn’t list first. It’s probably a constant back and forth battle. Maybe you pick up some new users that stick around each time, but with crypto, the switching cost is super low.
[00:20:00] The retail consumer that they’re not deep into crypto, they just wanted to buy some Bitcoin and hold onto it. I don’t think they’re paying attention to this. But the guys that are actively trading that are in the market and participating in ICOs and stuff, the switching cost is super low. They can move exchanges in a matter of minutes and you have to constantly fight to keep those guys.
Clay: There seem to be some fads that you guys have not [00:20:30] bought into. To my knowledge, you guys are not doing IEOs, you’re not launching a DEX, and you haven’t launched an exchange token. It seems like, at your core, you’re a pretty focused company. Is that on purpose and by design, or do you wish you would have launched an exchange token? How do you feel about some of these fads that you’ve passed up?
Jesse: I think becoming basically an exchange token almost makes you a public company. We’ve done some crowdfunding through BnkToTheFuture and [00:21:00] we only had 2000 participants there, which was the biggest crowdfunding they’ve done ever, which was awesome. It’s great to have all of these people be Kraken holders and have a stake in the success of Kraken. But there were definitely a lot of people in that group that just do not understand what investing in a private company means. They might be used to participating in ICOs. [00:21:30] Maybe they’re up 1000X from the Ethereum ICO.
It’s a total mixed bag. The reality is that private companies take a long time to find an exit. It could be 10, 15 years. I think the average for a company to go public is 12 years from inception. I think that the [00:22:00] demographics or the psychographics of the people that are interested in maybe buying an exchange token might be just a problematic set of investors to deal with. They might have very misaligned expectations. That’s one reason not to do an exchange token.
Another reason is we just haven’t needed the money. I guess it never hurts to have an extra billion dollars in the bank, [00:22:30] but it doesn’t come with scrutiny. We’re based in the United States. I like living here for now. Regulators are calling us up on a daily basis. We also want to avoid having a ton of complaints come in or people feel like they participated in some sort of unlawful securities offering, they got scammed, or something. It’s a distraction from what we’re really trying to do as a business.
Clay: [00:23:00] I imagine that especially when the price of Bitcoins spikes, you have a lot of support requests to add to that 20,000, 30,000 people that think they should have the same information rights as they would have invested in publicly-traded company or in a telegram room seeing [wind moon 00:23:21] and complaining about things, generating rumors, and wanting an update. That’s just probably not something you want to deal with.
Jesse: Absolutely. [00:23:30] For IEOs, I’m personally very bearish on the public investing in private companies for a lot of the same reasons. A small-cap private company $20 million valuation or something like that. I don’t think it’s very interesting. There’s not a lot of information out there. Again, it might be a 10-year story to actually be able to sell your shares [00:24:00] at a profit. You don’t have information. There’s not like a lot to trade on. As an exchange, it would not be a very interesting market. We wouldn’t list a coin probably that had a $20 million market cap and 30 holders of that coin.
It’s just not appealing relative to all of the other things in the backlog, other tokens we could list, other things [00:24:30] we could support staking for. There’s so much to do. It really just comes down to priorities and pricing the cost of delay or opportunity costs of doing things.
Clay: If your present self could go back and talk to your past self when you were first starting Kraken, what advice would you give yourself? Would you be like guys, you should start an affiliate program earlier, or this futures thing is going to be way bigger than you might anticipate. [00:25:00] What words of guidance or words of caution would you give yourself?
Jesse: Probably every startup founder would say this but I would say push the launch for like one more month and add a bunch of these other features that you think you’re going to be able to add in a little bit. [00:25:30] Because there’s just a lot of stuff we wanted to do from the beginning that we just were not able to get to because things took off so quickly. We finally launched the exchange to the public in September of 2013. Gox blew up in February of 2014. [00:26:00] Less than six months later, we were slammed with a bunch of new users.
Basically, we went from working on the roadmap to putting out a bunch of fires and dealing with all of the issues related to scaling stuff that the users were dealing with, which could have been problems with our banking partners or just random issues with the interface that we didn’t [00:26:30] predict. I would say that would be one thing, but the risk there, obviously, is your product is never complete. When do you actually pull the trigger and ship it?
There are a few more things that we would have loved to have from the beginning that we ultimately didn’t get to until years later. I would say we wasted a ton of money on legal stuff, [00:27:00] compliance-related stuff in the beginning. It was basically fleecing by the lawyers. They were happy to pontificate all day for you and educate themselves on your dime. We spent millions of dollars having lawyers basically tell us we don’t really know. Roll the dice. It’s up to you. That was a complete waste of money. We were a lot more conservative in the beginning than [00:27:30] we needed to be because we were worried about getting the regulatory stuff right in every jurisdiction.
It turns out, most countries in the world don’t have any clue what’s going on. They are not enforcing anything and are in this wait and see or explicitly we’ve determined this does not fall within our regulations. Other [00:28:00] companies that took a much more aggressive approach that just said screw it from the beginning, didn’t care about anything, they have gotten a lot farther faster. That kind of thing may be only knowable in hindsight. That approach may be only doable from outside of the United States.
We are all very exposed here in the United States, I’m very aware [00:28:30] of that. If I were to do it again maybe I would move to Singapore, Hong Kong, or something and set up the exchange there and have a much different risk profile and be able to be much more aggressive.
Clay: I’ve definitely had the experience before of having a basic question for an attorney and they managed to bring three other associates onto the phone call. They’re trying to charge for all four of their billable hours. They end up just reading you [00:29:00] the statute straight out of the book and then telling you that they don’t know anything. That they should generate another five-page email that they’re also going to bill you for. That situation seems really dishonest, frankly.
Jesse: For sure. It’s a total waste. A trick that I’ve learned when talking to attorneys is rather than asking them how you can do something you tell them whether it’s true or not, hey, we’re doing this, now write me up the defense. They’re not in a position of deciding [00:29:30] for you. They’ve got to actually come up with the justification, the loopholes, and everything for what you actually want to do.
Clay: That’s a really cool idea. If they come back and they have no defense then you probably learn something as well.
Clay: Remember when I was interviewing CZ, it didn’t sound like he hated his life but he didn’t make it sound like it was very easy either—changing servers in the middle of the night, dealing [00:30:00] with huge PR issues, and getting involved in all these kinds of Twitter wars and stuff. Can you share a little bit about how you spend your time, what your average day looks like, or at least your average week? A day is hard to do. How do you segment your time and where do you primarily focus on a week in week out basis?
Jesse: I spend a lot of time in product meetings just helping check some decisions, helping to direct the future product offerings or changes to things. I love to be really close to the product. I consider myself a product guy much more than a business guy. I’m definitely not a financial services guy. I never would have thought I would be running a regulated financial services company, but the truth is stranger than fiction. A lot of time on [00:31:00] product stuff, that’s just kind of as I want to do it. I enjoy it, so I end up doing it a lot.
Regularly dealing with some kind of regulatory issue where I might need to give some kind of input. We’ve got a great team for that that handles the majority of it. Speaking with reporters. I’ve got [00:31:30] meetings with my direct reports, which are—what do I have now—eight direct reports or so.
Clay: That’s fantastic that you’ve kept it at that. That’s really great.
Jesse: It was 12 at one time, then I got it back to six, and now it’s at eight. It would still be great if it were less, but it’s manageable now. Usually, we go through what’s happening, [00:32:00] anything I might be blocking on, or where they need a little direction on. I’ve found, as you grow the company as a CEO, as you’re growing something, it’s really just about building the machine and making sure that the people under you are empowered to operate as autonomously as possible so that you don’t have to be making micro-decisions, which is just impossible.
It’s impossible to have all the info and be making good decisions about everything all the time. [00:32:30] Getting those people right under you is really critical as you get bigger and you can’t be in every meeting or be aware of everything that’s going on.
Clay: In a past life, I ran a company that was about 175 people. It’s probably not as big as Kraken, but I found that there are certain people that we’d hire that it was part of their stipulation. We’ve really wanted to hire them but they would only come on board with the condition that they [00:33:00] report to me. At some point, there are too many people. You had to ruffle some feathers and change the org chart.
Jesse: I’ve had that as well, or they’re upset when you’ve got to put somebody on top of them. It’s unfortunate that in a startup, hopefully, if you’re a fast-growing company, you’re doing well. People don’t necessarily grow with the company. You might have [00:33:30] someone who’s doing great managing a team of five people and two years later it might be that the team is now 500 people. You need someone who’s at that level with that kind of experience. The person who was good at five just didn’t evolve.
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A second thing that I really about Nexo is that you only pay interest on the amount that you borrow. I’ve seen Nexo competitors require you to take out loans and force you to borrow the entire amount. With Nexo, you get a credit line, can borrow only the funds that you need, and pay them back [00:36:30] whenever you want, with interest assessed daily. Again, this just isn’t something I’ve seen other providers do.
The final aspect of Nexo I’d like to highlight is that they give you the ability to borrow against a basket of crypto assets. For example, if you post BTC, ETH, and BNB as collateral to your Nexo account, the Nexo Oracle calculates the real-time market value of those assets and adjusts your credit line accordingly. To my knowledge, other providers in this space only allow you to borrow against one asset per loan.
Finally, this episode is brought to you [00:37:00] by the startup that produces it, nomics.com. Nomics is a crypto market cap website and aggregator going head to head with CoinMarketCap. We stand as a transparent alternative to many of the sketchy market cap websites out there. We won’t name names, but I think you know who we’re referring to.
Anyway, if you haven’t been to nomics.com in a while, I encourage you to visit our website. We offer transparent volume statistics for nearly every cryptocurrency and crypto exchange in the space, and I believe we have the only credible crypto exchange index in the space at the time of [00:37:30] this recording. If you’re sick of scammy ads, bad design, and manipulated data provided by companies whose founders hide from public view, then check us out at nomics.com.
Okay, let’s return back to the show.
Jesse: In the beginning, when the team was 10 people or something, there were customer service agents who reported directly to me. When we installed a manager of customer service, they no longer reported to me, and they were upset about that. [00:38:00] It’s still only one layer removed. Today, they’re probably four layers removed from me or something. The people I guess enjoyed working in a much smaller environment. You’ll see as you go through the growth phases, some people are just better on smaller teams. Some people absolutely hate the bureaucracy and the process that comes with being on a team of 1000 people or something. I think it’s just natural that [00:38:30] people come in and out as the company changes its composure.
Clay: Let’s transition to chapter two. I’d love to get a rundown, it’s just kind of the 20,000-foot view of everything that’s going on at Kraken—services offered, acquisitions, or anything you can share around metrics. Anyway, we’ll unpack this. Let’s start with services. You’ve got the spot exchange, you’ve got the OTC Desk, [00:39:00] you’ve acquired Crypto Facilities, which is now Kraken Futures, you’ve got your indices, and there’s some margin trading. Anything I’m missing here in terms of the range of services that you offer?
Jesse: Cryptowatch is not in there.
Clay: Yep. That wasn’t on purpose. Cryptowatch. Cool. I like Cryptowatch quite a bit. I didn’t realize that it was an acquisition. I thought you guys had built that from scratch.
Jesse: It was very early for Cryptowatch when we acquired it. It was a one-man [00:39:30] operation when we acquired it, which I think was it 2016? We’ve put a lot of work in since we picked it up. Arthur, the founder, is still on the team. He’s basically the GM of Cryptowatch.
Clay: Acquisitions, I’ve got in no particular order, Interchange, and Circle Trade. From the outside, it seems like a pretty baller acquisition. The [00:40:00] exchanges, CryptoFacilities, Bit Trade, Coinsetter, Cavirtex, Clevercoin, and Gildera. Any other acquisitions?
Jesse: We’ve done a couple of other tiny things that have been like tuck-ins. We acquired the cryptofinance.ai, Google Sheets plugin. If you’re familiar with Google Sheets, they have a Google finance formula or function. [00:40:30] It basically works just like that but it pulls crypto market data instead of stocks or FX.
Clay: Was that to extend the capabilities of Cryptowatch?
Jesse: Yeah, pretty much. We saw it as an add on service for Cryptowatch and it plugs just into the Cryptowatch backend. It gets all the data out of there. It was a good consolidation play because it was also like a one-man operation. He was replicating a lot of work that we were already [00:41:00] doing for Cryptowatch just to bring all the data in. Now he’s leading that project at Cryptowatch and it’s got other guys to help him out. It’s a good match.
Clay: I really enjoy looking at the companies and people that have come through those acquisitions. It seems like you’ve attracted a lot of really cool people to your team. It’s cool to see Dan Held move over. You have Pete Rizzo, definitely an OG in this space. [00:41:30] Just the fact that Circle Trade was open to doing the deal. It feels like within the ecosystem you guys have really built a great deal of trust. Just seeing who’s gravitated towards you guys, I imagine that with some of these acquisitions, there are probably multiple bidders, and I imagine reputation goes a long way in terms of getting these deals done.
Jesse: Yeah, I think it does. There’s a lot that can go wrong in an acquisition. [00:42:00] A lot of ways you can screw it up and just destroy value. For most things, you want to get the team on board. If you’re inheriting a product, you need someone to maintain that product, someone that knows it. You wouldn’t want to just buy something and then have to allocate engineers and stuff to figure it out from scratch.
The people component is huge. Finding culture fit is really important. [00:42:30] When you have multiple bidders for something, the guys on the selling side may also be aware. They have some kind of lock up for usually at least a year, if not longer, where they have an earnout as part of the deal consideration. That’s a big factor. They want to go somewhere where they [00:43:00] feel like they’re ideologically aligned, where people are on the same mission, and where there’s a match of culture, not where they’re going to hate their job every day and they have to walk out on whatever half of the deal consideration because they just can’t stand it anymore.
We have a competitive advantage there in that we have, historically, been very mission-driven and [00:43:30] very pro-Bitcoin. We’re just about bringing more people into Bitcoin, or as I think other companies may be more explicitly focused on optimizing revenue opportunities. People often cite our stance with the regulators, which is that we’re not immediately bowing to everything that comes up, but we try to find a fair position like a compromise where [00:44:00] we can preserve financial privacy, or we can preserve some basic business standards.
Our position is reasonable and it’s that the other guys, just by comparison, they’re just so quick to comply I think because they’re just scared. They’re scared [00:44:30] of what happens even if you’re completely in the right to not comply and to challenge a request that comes to you. There are all sorts of ways that regulators and law enforcement can make your life difficult in some unofficial capacity. If you don’t comply with these voluntary information requests they can just choose to audit you or choose to make statements about how you’re a sketchy business because [00:45:00] you declined this voluntary information request.
I think people respect us for standing up there and trying to hold regulators and law enforcement, I hate to say accountable, to some basic level of decency.
Clay: I really enjoyed reading your letter in response to the New York Attorney General. You said the word reasonable. I think that’s what came to mind for me as well when I read that your response seemed fair. I think it was two weeks they wanted the information back. It would have tied up a whole legal team, much of your staff, for a long period of time. It’s not fair. You added like, “Hey, what about auditing the Fed?” You said some kind of cool libertarian things sprinkled in there as well, but the fundamentals of your argument were very sound.
You ended with if you want to fly down here, if you want to hop on the phone, or if you want to do this in a cool way, [00:46:00] we’re open to it. To make us just jump when you say jump it’s as high as you’re telling us to jump, that’s just not cool and it’s not a way to run a business. You’ve managed to stay in the US, sounds like you’re domiciled in the US, and all that stuff, but you still push back here and there. I think the community respects that.
Jesse: It’s a fine line trying to hold it as long as we can.
Clay: What are you open to sharing about employees, users, revenue, and things like that? [00:46:30] Let’s start with employees. How many employees do you have?
Jesse: We are just about 1100 employees.
Clay: Wow. You’re clearly in the headache stage of org chart development.
Jesse: Yeah, very different problems than we had five years ago.
Clay: How about users? Are you open to sharing monthly active users or whatever?
Jesse: I don’t have that off the top of my head. It’s definitely growing lately. We’re seeing a lot of people come back who’ve been dormant. The [00:47:00] number of new users signing up is up multiples over what it was a few months ago. The recent volatility in the traditional markets and maybe people also just being stuck in their houses with nothing else to do are signing up to trade. It’s been good for business. I think it’s terrible for the rest of the world, but it’s good to have this in a way I guess antifragile [00:47:30] kind of business where no matter what happens, as long as there’s volatility, things are good.
Clay: I know you’re a private company. I’m not trying to pry here but I also just want to ask, are there any revenue numbers you can share or anything even general like we’re doing in the $50 million-plus, $100 million-plus, $20 million. Is there anything you can share about revenue ballparks?
Jesse: Yeah. Revenue ballparks, I mean you can probably estimate this just by doing the math off of fees and volume. [00:48:00] It’s $100 million-plus. We’ve been profitable since 2015, I think.
Jesse: Thanks. Good position for a startup to be in.
Clay: Revenue streams. Obviously, there’s trading fees, but are there any ways that you make money in addition to trading fees?
Jesse: Yeah. We make a little bit of money off of funding fees, but that’s minuscule. It’s pretty much [00:48:30] trading fees.
Clay: I’m sure it looks like there’s a pit. You can pay for Crypto Watch.
Jesse: Yeah, that’s right. Your Crypto Watch subscription. You could also license the index from the benchmarks business. These are very small revenue streams relative to the exchange business.
Clay: With Crypto Watch, what was the thesis there? Was that basically this is a top of funnel opportunity and people are going here to check prices then maybe [00:49:00] we can funnel them into Kraken?
Jesse: That and there’s the marketing value of it. We haven’t really leveraged that a lot, but we thought there’s got to be a place, just for the health of the ecosystem, to benefit the ecosystem. There’s got to be a great Bloomberg terminal of crypto that has all this data available [00:49:30] for people just to see what’s going on. We wanted to support that. We thought as well this was going to be a big investment. This couldn’t be a one-man operation. At the time, it would have been an extremely difficult thing to raise money for as well.
We thought acquiring it would allow us to back it completely, give it all the resources it needs, and build it into what, hopefully, one day, [00:50:00] we’ll be the Bloomberg terminal of crypto. I’m sure it’ll expand beyond crypto at some point as well.
Clay: Let’s transition to chapter three, product focus and differentiation. Apart from branding, what do you think about Kraken and product differentiation within the space? A lot of companies have cultural values [00:50:30] or core values, but if you had to enumerate what your product values are, what would you say they are?
Jesse: Things we’ve really focused on over time are security, first and foremost. We were building this thing—
Clay: You guys have never been hacked, right?
Jesse: No, that’s right.
Clay: It’s awesome.
Jesse: It’s great, knock on wood, but it doesn’t come without trade-offs either. You can view it the same way you view regulation, in a way. [00:51:00] I don’t know if you play video games but there’s this concept of the glass cannon in video games, which is someone that basically rolls the character which is all attack and zero defense. They’re killing enemies like a hot knife through butter, but they take one point of damage and they blow up. There are a lot of businesses that run that [00:51:30] model in the space, which is super scary to me.
It’s scary to see how fast some other businesses are developing their product. I’m thinking okay, your whole company is 20 people. Our security team is 40 people. How are you doing this in a way that is totally secure? This kind of stuff gives me cold sweats in the night. When you see this happen over and over [00:52:00] with local exchanges as you did with Quadriga, is the most recent big example where this exchange, I think, they’re like the largest Canadian exchange at the time, was like three guys.
It’s hard to see from the surface what’s going on behind the scenes. It’s not that hard to put up a trading interface. You could even be matching orders like in an Excel spreadsheet. We found out [00:52:30] the CEO is actually processing funding transactions, deposits, and withdrawals, by hand manually out of a wallet that he just controlled the keys to in his own computer. It’s really hard to know from the surface what’s happening in other places, but knowing what it takes to do things securely, I cringe when I see how fast other guys are moving or what they’re doing with the size of the team that they have.
Other than that, I’d say customer service is [00:53:00] really important to us. It’s something that at our last business, which was the virtual goods business, it was something that we also felt was a differentiator for us because this was another business you could just run from anywhere in the world. There was a lot of price competition. What we heard from our customers over and over was just like we come to you guys because you have the best service. You’ve got people to help us 24/7. You always respond to tickets[00:53:30] within five minutes. It feels really personal. They were willing to pay more for that.
I would always rather be running a business that has higher margins that people are willing to pay more for than to just be competing for how to offer the services as cheaply as possible and only give people the bare minimum that we can get away with. I think it’s just a much more defensible business to have a really strong brand that people feel an emotional connection with than [00:54:00] to just be making yourself a commodity business. Customer service is really important. To me personally as well, it’s really important. I’m extremely picky about customer service when I go anywhere for dinner, to a hotel, or something. That’s something I always pay attention to.
The third thing that we’ve really focused a lot on since the end of 2017, which was like the [00:54:30] last big bull run where we absolutely got crushed, and basically everyone in the space got crushed with the number of new users that were coming in. There were days where people were getting 50,000, 100,000 new users signing up. Along with that was like 20,000 support tickets every day. Any kind of blip in the service would just cause 10,000 tickets to appear. That kind of uptime, getting to [00:55:00] 100% uptime, flattening the curve if you will, and looking for things. What did people submit support tickets about?
It might only be there were 10 tickets last month about this thing, but in a scenario where we have 50,000 new people signing up, you might get like 5,000 support tickets about that thing. Just looking for a bunch of stuff like that. What are all these things we can knock out that are going to reduce the number of tickets that come in [00:55:30] a peak flood bull run scenario where you have 1 million new people coming on, just don’t know anything, and they were FOMOing in and really need hand holding.
We’ve done a lot of that. Our uptime has been awesome basically since January of 2018. We rolled out a major infrastructure upgrade. We’ve had a couple of other big upgrades since then and things have been super solid. [00:56:00] Fingers crossed, hopefully, we’ll continue to be super solid going into this upcoming big bull run that is inevitably going to happen as soon as the dollar collapses.
Clay: What about user personas or verticals within this space? Rightly, there’s this prosumer persona that they don’t work for an institution but they are a full-time trader. There’s maybe the more typical they just want [00:56:30] a one-sided fiat on-ramp where they can purchase some Bitcoin. There are institutions. You can’t serve them all equally. Would you say there’s a top one or two personas or sub-verticals that you’re most focused on?
Jesse: Historically, we have been more focused on maybe the prosumer trader as you said. We have a relatively complicated interface [00:57:00] if you’re not used to trading. If you’ve just been trading stocks, you might not have any idea what an order book is, how does it work, what is market depth, what is slippage and stuff like this. That was how we got started, but over the last 6-12 months, we have really been putting a lot of effort into some changes that are coming up in the next two months that will be released.
One is a retail mobile app, [00:57:30] which makes it dead simple to buy and sell Bitcoin. Another is basically an upgraded simplified version of the desktop website for the retail consumer. We want to put more effort into that because we think it’s an area that we’ve neglected, but also it’s the biggest growth opportunity because these retail consumers, the grandma that just wants to buy half a Bitcoin or something for long-term savings, [00:58:00] this is like 99% of the world. We want to have a really easy and an onboarding flow for these guys to be able to get into Bitcoin. We want to make getting into Bitcoin easy and bring more people into the space.
The exchange business powers all that. The liquidity for that operation will come from the exchange, which most people might not ever care about. They can opt into that if they really want to [00:58:30] trade with an order book. Let’s say the retail consumer is an area of focus for us now. Let’s say the market makers are a big deal. Probably all of the exchanges are catering to the market makers in some way because they are bridging liquidity from all of the platforms and providing that liquidity on your platform for the retail consumer or the less [00:59:00] sophisticated trader.
They’re often asking for all sorts of things as well. In some ways, they may be adversarial to the exchange. They’ll ask for an edge. Basically, they always want an edge, right? It can be harmful to give one guy an edge that you don’t give to everyone else. You might end up with one giant shark instead of an ecosystem of sharks. You want to have [00:59:30] diversified revenue, not be completely dependent on one guy. There’s always a balance there in determining what you’re going to cave on. It isn’t just, obviously, we give the customer what they want because if they had it their way you would give them the entire business.
Clay: The market maker thing is interesting. I know a few large market makers and mostly changes won’t give them the time of day. They’ll barely even get priority email. They certainly can’t get on [01:00:00] the phone with anyone. It does feel like a point of differentiation if someone on the team will give them a phone call, actually answer a question, and establish a real timeline of communication.
Jesse: For sure. You have to. This is a lesson learned in the virtual goods business for gaming. Any game developer will tell you this as well if they’re selling loot boxes or whatever. You have whales in your business and [01:00:30] you might make 90% of your revenue from your top 100 clients. The whales expect to get a special service and expect to have someone on call. We’d like to take very good care of these guys. We don’t always give them exactly what they want, but we want them to have someone on speed dial that they can call if there’s a problem.
Again service is a differentiator [01:01:00] for us. I think it’s super important. I wish more businesses out there actually had a whale tier of service because it gets kind of annoying. Let’s say something like Postmates. If you’ve used Postmates all the time. I constantly had this issue with them where I would want to order like a burrito at midnight to be delivered to me. [01:01:30] It would constantly get rejected I think because the Postmates fee was 10% of the price of the burrito or something like that. Of course, they would just be like it’s not worth it.
I might’ve paid like $20 to have that burrito delivered to me, but there was no way to do that. There was no way to say give me the best Postmate you have, definitely one that’s like not on crack right now who can find his way here in the middle of the night [01:02:00] and I’ll pay $20 for that. That didn’t exist. My order just got lumped in with the system of other guys bidding $1 to get something delivered. That was a missed opportunity for them.
This is the whole value prop of first-class flights and five-star hotels and stuff. What you’re getting—the product is not actually that much better [01:02:30] but the service around it is way better. That’s what you’re paying. That service treatment on a first-class flight versus an economy is night and day. You’re treated like royalty in first-class and you’re treated just like cattle in economy. It’s crazy what people are willing to pay for that. Your first-class ticket might be like $20,000 and economy on the same flight might be like $500.
[01:03:00] That goes to show that the people, the whales, that value being treated well are willing to pay a lot for it. You just got to give them an opportunity to pay. You’ve got to create that tier for them that they can buy from you. That’s a missed opportunity for a lot of businesses.
Clay: Yeah, I completely agree. Let’s say you’re a top-five market maker on Kraken, would there be the equivalent of an account executive or someone [01:03:30] there that’s your point of contact?
Jesse: You would definitely have a dedicated account manager that you could call 24/7. If that guy happens to be asleep, dead, or whatever there is a rollover kind of thing. You’ll have a second guy who can answer, and if he’s not around it goes to a third guy. The goal is that there’s never anyone that you can’t reach within a few seconds if you have a problem.
Clay: Thinking about non-fungibles, I’m a huge fan of like CryptoKitties, Gods Unchained, not as investment [01:04:00] opportunities but it’s just really interesting. But I also have spent way more money than I’d ever admit to on domain names. Once I bought a $1 million domain name and learned a lot about that process. I love domain names. I’m personally a huge fan of the Handshake network and how they’re opening up the top-level domain space. Have you thought about seriously allowing people to trade non-fungibles on your platform, or [01:04:30] it’s not a big enough market yet with the ROI that you’d need to make that work?
Jesse: We are interested in that. It’s a very different business. You can’t just have an order book for these things. You need to build out an ecommerce store or an auction site. I think it’s still very early for this, but I do think it’s increasingly going to be something that people are interested in. It’s more of a longer term thing for us. [01:05:00] This would just be taking me back 20 years to the old business. I’m very familiar with how to do this. I just think, relative to the other opportunities in front of us right now, it’s not a high priority. I think it’s going to be awesome.
You’re going to see other things tokenized too, not just CryptoKitties, but you’ll see a tokenized house or whatever. If you can make a bear asset out of anything, that [01:05:30] market for everything else, the physical stuff that could become tokenized will become much bigger. You’ll see other reserve tokens in the way that Tether is a reserve token. There’s a bank account or a vault somewhere with a bunch of dollars in it and then they issue these tokens off of that.
You’ll see a similar thing with other assets. It could be diamonds or something where De Beers is now [01:06:00] issuing tokens for diamonds that they have in the vault. That thing can be redeemed somewhere or it can be traded.
Mike: Hi, this is Mike cutting in from the editor’s booth. If you’re interested in asset tokenization check out our Tokenize the World documentary. It’s a series that we first published back in March 2019 and have been updating ever since. Catch it at flippening.com/tokenize.
Okay, back to Jesse.
Jesse: [01:06:30] I’m personally kind of bearish on collectibles in general. I have a bunch of experience with this from Magic: The Gathering cards. I used to trade Magic: The Gathering cards and arbitrage card prices in different markets as I was traveling around to tournaments and stuff. When you look at baseball cards or look at comic books [01:07:00] and the value there over time, for them to remain valuable either they have to be in some way historically significant like on a universal level.
There are some things that might be historically significant like the original copy of the Bill of Rights or something found in the back of a painting. Something like that, but cards like the Mickey Mantle rookie [01:07:30] baseball card, other guys, other baseball cards, and even comic books you’ve seen either be stagnant or just fall off a cliff in terms of value. I think it’s because while they may be rare, still, there just aren’t people interested.
People interested in buying them are dying. The new people, they have kids growing up today—Gen Z, no idea who Mickey Mantle is. Maybe not even interested in baseball. [01:08:00] They would buy a card for like the hottest TikTok star or something like that, but some old baseball dude that their grandpa liked, why would they see that as a stored value?
I think that remaining in use or remaining as part of pop culture, the Zeitgeist of society somehow is important to value. [01:08:30] Magic has been able to retain or increase in value because the player base is still very strong. It’s only been 25, 30 years or something like that for Magic. It’s still short. It could be there’s another game that comes out that causes everyone to stop playing Magic. I would be very [01:09:00] bearish on the value of Magic cards if it’s no longer like a status symbol. The beta Black Lotus is worth a lot because when you drop it in a tournament everyone’s like oh my God. This dude is driving around a Lamborghini. People are in awe of that.
When you can’t do that anymore and it’s just sitting in a box in your house, it loses a lot of the value. [01:09:30] NFTs CryptoKitties, they were super-hot for a time, but once the trend faded and it wasn’t in front of everybody all the time, the market kind of crashed. That’s just something to keep in mind with these digital collectibles. They may be only momentarily valuable. People can quickly lose focus and move onto something else.
The first thing to figure out is the staying power. I know there are [01:10:00] some digital versions of Magic that are like DeFi card games. For those cards to remain valuable is going to just be completely up to how popular this game can be over time.
Clay: Let’s say you wanted to start an exchange from scratch today, and maybe your answer would be that you would not do that, but if you were going to start a crypto exchange today kind of understanding the barriers to entry and the existing moats that exist, [01:10:30] what would you do? Would you go into a smaller country and just create a simple one-sided fiat on-ramp, or would you focus on maybe the NFT space? Again, let’s say you had no Twitter following, no huge stash of personal wealth, and you wanted to just do something that had a really high probability of success and just nail a niche or a vertical or sub-vertical within the exchange space, what do you think you’d do?
Jesse: [01:11:00] Good question. I definitely would not start another exchange now knowing everything that I know now. Just where the ecosystem is today, there are a lot of options. If you wanted to be disruptive somehow, if you were going to steal market share, you have to do something that no one else is doing. That might mean you’ve got to take on way more risk. We’ve seen startup exchanges over the years who have [01:11:30] managed to steal market share. They have done it usually through taking on more risk. If not that, through offering crazy products that no one else thought of. Really creative derivative products or something like that, creative contracts.
From a risk perspective, we’ve seen the torch be passed a couple of times from exchange to exchange. As [01:12:00] exchange emerges, they are going crazy with their product offerings or their approach to compliance. Maybe their differentiator is zero KYC. You can sign up with an email and you can start trading $1 million a day, no problem. That is something that an exchange like us that is under scrutiny all the time because of our size and because we’re constantly applying for different licenses around the world and being audited and all this stuff. That’s just an [01:12:30] approach we just cannot take.
If you were not risk-averse and you felt like you were small enough, you could fly under the radar for a while, you might be able to grow that way. We’ve seen this happen a few times and the exchange has grown, but they get to a point where they start to get noticed, they start to get subpoenas, they start to get threats from regulators, and then they change that behavior. Someone else [01:13:00] emerges that basically takes the reins from them that has adopted this zero compliance strategy or extreme risk-taking strategy. They are able to grow up to a certain point when they start to get noticed.
That’s a proven strategy, but what do you do when you start to get noticed? How do you differentiate from there I think is a really tough question. [01:13:30] Serving a local market is great but can you support your basic infrastructure cost with only serving a local market? We’ve seen historically, that’s very difficult to do because doing security right is super expensive. Maybe you really need a global scale business and that kind of revenue to support that function.
There’s the compliance approach. [01:14:00] On the product side, maybe you can think of something that no one else has thought of. If I had thought about it I would be doing it. Someone would have to be more creative than I am.
Clay: Let’s say you come up through Y Combinator and the token wisdom is like a Delaware C Corp, get an account at Silicon Valley [01:14:30] Bank, and raise funding from VCs with traditional docs. Do you think that people who start exchanges are at a disadvantage if they go down that path versus maybe the paths that someone might go down if they were raised in places with a lot of regulatory uncertainty with very authoritarian governments that are used to living on planes, hopping from jurisdiction to jurisdiction, evaluating some of these jurisdictions [01:15:00] against each other, filing for all kinds of different things, and just living this trans-national life?
Are we at a disadvantage in the United States because of the established patterns that are in place for startups that we just assume are right when we’re just getting started?
Jesse: We’ve seen guys based in China, or other parts of the world who don’t have the same risks we have in the United States, are able to move much faster. [01:15:30] On the other hand, it was hard to know back in 2011 how things were going to play out. I wouldn’t have expected so much uncertainty to still exist in the United States. I would’ve expected maybe more enforcement around the world. I don’t know if it could’ve been predicted.
It certainly seemed like back in 2011, going the traditional route of raising money in [01:16:00] Silicon Valley and doing things completely above board was like a safe path. There also wasn’t all this international competition at the time. Also, nobody had crypto so you needed to have a bank on board. The easiest way to get a bank on board is to have your gigantic super powerful investor put some pressure on this bank for you. [01:16:30] I don’t know if there was another way to do it. We got lucky in getting a bank account in Germany through a startup bank called Fidor.
There was only one bank that was doing Bitcoin in the United States for two years and they were only working with one company. They were only working with that company because of the investors that they had. I would say that that approach paid off extremely well for them. They basically had a two-year head start in a very large market. [01:17:00] I think that model kind of broke when Tether emerged. There was a way to have dollar exposure without having a bank account. You could go completely un-banked.
If you didn’t have to convince a bank that you were a legit business or that the regulator wasn’t going to crack down on them, you can dodge that requirement entirely. That [01:17:30] opened up many more possibilities for you. You could basically do anything you wanted from anywhere. That didn’t exist, Tether didn’t exist back in 2011, and it didn’t really become a big thing until 2017 maybe.
When this bull market started to take off and a lot of people were able just to hold dollars and [01:18:00] to trade on exchange that had no banking connection whatsoever. No regulatory oversight whatsoever, which meant that they could do a lot more stuff and which meant that they could actually offer the customer a better user experience because a lot of the friction points that we put in front of people are not because we don’t want their business but because we’re required to by a regulator. [01:18:30] If not the regulator, required to by our bank or our fiat funding partners.
I think it’s changed over time what you can get away with. If I were starting a new business now I’d probably do crypto only. I would try to capture people that already have crypto and just use stable coins and let them trade that.
Clay: If you peer into the future, I would love to hear either a general statement [01:19:00] about where you think Kraken is heading or where would you like to go, or maybe make an analogy to kind of legacy businesses. Maybe the best metaphor is that it becomes like a bank or the best metaphor is it becomes like the New York stock exchange or the best metaphor is it turns into something altogether. Do you think there is a straight analogy there, or do you think the space is just so new and unpredictable? It’s hard to do that. Anything [01:19:30] you could share about like the big picture where you see Kraken going would be helpful.
Jesse: A lot of directions we could go. It’s probably going to change over the course of time as DeFi becomes more useful. Probably some combination of like a Fidelity and a CME Group where we’ll continue to have markets. Price discovery, markets, and liquidity are the core of what we do. [01:20:00] We’re trying to build other services around that, really leverage that. Other tools for retail consumers like maybe more assets to trade, exposure to more asset classes, maybe automating trading strategies, or the simplest thing being like dollar-cost average.
There are all sorts of insurance products that could be offered, other wealth management services that could be offered. There’s [01:20:30] a ton of crypto millionaires out there that could probably use some sort of wealth management advice. I don’t know where everyone’s going for that now. Maybe everyone’s just along Bitcoin and it’s probably hard to outperform that. Maybe they don’t need any wealth management advice. There is so much stuff we could do. The hard part is really just figuring out what to focus on in the near term and what can [01:21:00] wait.
I hope that DeFi develops a lot. I hope that people don’t have to trust centralized exchanges forever or centralized custodians. I hope that we can continue to facilitate these financial services that will hopefully primarily exist on-chain somewhere where if people don’t want to use us, there’s still a way through a wallet that they control on their own to interact with [01:21:30] smart contracts and stuff. Maybe we’ll just end up being like a customer support center and like a user interface – for DeFi products down the road. I think that would be awesome. I would love to be out of the custody business and just be helping everyone do their thing in DeFi.
Clay: If you could wave a magic wand and altruistically and instantly [01:22:00] do something for the space and for the ecosystem, what would it be? Would it be the digitization of the dollar, everyone learning Chinese, or regulatory certainty? Is there something that immediately comes to mind?
Jesse: Removing all of the regulation in the world would be amazing. That would cause an explosion of activity instantly. I think that’s very wishful thinking. There are a lot of other implications [01:22:30] to that. If people are educated enough I think there’d be a lot of hard lessons learned in the short-term by people who are used to being protected and not having to think for themselves. Regulation is one of the big things holding us back right now. Regulatory certainty might be an upgrade or it might be a downgrade.
There’s been some very horrible regulation. We have regulatory certainty in New York and the bit license is horrendous. [01:23:00] It can go either way on that. It’s better just to let the free market flow and get people educated. I think the market will find a way.
Mike: That concludes Clay’s conversation with Jesse Powell. I hope you enjoyed it.
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All right, that‘s all for this week. Stay tuned for next week’s episode. Until then, take care. [01:24:00]
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