Kraken: The Crypto Native's Powerhouse Exchange | Dave Ripley

This episode features Dave Ripley, CEO of Kraken, discussing his journey and insights into running one of the leading cryptocurrency exchanges.

1. Dave Ripley's Reflections: Celebrating one year at Kraken, Ripley discusses navigating challenges and leveraging opportunities to enhance Kraken's market position.
2. Comparative Strategy: Insights into Kraken's strategic positioning against competitors, focusing on their tailored approach to professional and retail users.
3. Regulatory and Market Challenges: Ripley discusses how Kraken has navigated the complex regulatory environment and market dynamics, emphasizing the importance of compliance and adaptability.
4. Technological Advancements: Exploration of Kraken's technological innovations, including their marketing strategies and potential ventures into L2 solutions.
5. Future Outlook: Ripley shares his optimistic vision for Kraken's growth and the broader cryptocurrency landscape, considering ongoing regulatory developments and technological advancements.

1: Introduction

Jason Yanowitz introduces Dave Ripley, discussing his background and the significance of his leadership at Kraken. They touch on the evolution of crypto exchanges and the unique challenges faced by industry leaders. Jason Yanowitz: "Welcome back to another episode of Empire. We have Dave Ripley, CEO of Kraken, for, I think, 12-month anniversary."

2: Strategic Insights

Detailed comparison of Kraken with other major exchanges, particularly focusing on user experience differences between Kraken and Coinbase. Dave Ripley: "Kraken has focused meaningfully on those more professional advanced traders and investors historically."

3: Regulatory Landscape

Discussion on navigating the regulatory environment, particularly in light of recent industry failures and their implications for crypto exchanges. Dave Ripley: "We have really significant business in US, Canada, Europe, UK, Australia. Those are major markets."

4: Technological Innovations

Exploration of Kraken's technological advancements, including their marketing initiatives and plans to potentially integrate L2 solutions. Dave Ripley: "Yeah, for sure. L2s in general are, you might say that's one of the big areas of this cycle."

1. Diversify Crypto Investments: Considering the volatile nature of cryptocurrencies, diversifying your portfolio can mitigate risk.
2. Stay Informed on Regulatory Changes: As the crypto landscape evolves, staying updated on regulatory changes is crucial for compliance and optimal investment strategies.
3. Leverage Professional Trading Tools: Utilize advanced trading tools and platforms like Kraken Pro to enhance trading efficiency and effectiveness.
4. Engage with Crypto Communities: Participate in crypto forums and communities to stay connected with trends and insights.
5. Monitor Technological Developments: Keep an eye on emerging technologies such as L2 solutions to understand their potential impacts on the market.

In this episode, Jason is joined by Dave Ripley, CEO of Kraken. They discuss the challenges and opportunities of operating a major crypto exchange over the past year. Dave dives into Kraken's focus on professional traders, their expansion into retail markets, and the importance of building a bridge between traditional finance and the crypto ecosystem. Dave also shares insights on navigating market cycles as a crypto business, the value of hiring crypto-native talent, and his thoughts on the future of centralized exchanges as more activity moves on-chain.

People

Dave Ripley, Jason Yanowitz

Companies

Kraken, Coinbase

Books

None

Guest Name(s):

None

Content Warnings:

None

Jason Yanowitz

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All right, everyone, welcome back to another episode of Empire. We have Dave Ripley, CEO of Kraken, for, I think, 1212 month anniversary. We just had some. Dave, welcome to, uh, welcome to Empire, and congrats on the one year at Kraken. Thanks, Yano.

Yeah, yeah. So people think Kraken, they think of Jesse, I feel like, because he was just like a, you know, big pioneer. When I think of the early people in crypto, it's like, you know, the, the early founders, it's what Mike Belshi, it's maybe, maybe Eric Voorhees, Charlie Schremm, you could throw in there, and you got to put Jesse in there. Brian, obviously, Armstrong. And so I think when a lot of people think of crack and they think of Jesse.

You were put into this CEO role April of 2023. What is the best part about the last twelve months? And what is the worst part of the last twelve months? Yeah, well, gosh, a lot to cover. I mean, you pick any twelve month in crypto, I don't care what it is, bare boy, just into the heart of a horrendous bill.

Dave Ripley

It's, yeah, we've all, you know, as the saying goes, you know, we're, we all age, you know, five times, five times as quickly, you know, given all the excitement in crypto. But, yeah, first on, Jesse, I mean, I'm glad you hit that. I mean, I mean, he is, I mean, he's, you know, that one of the, just the top few pioneers in crypto, top few entrepreneurs, frankly. He's an incredible entrepreneur generally founded previous business before Kraken. Really only ever been an entrepreneur in his life.

And so he's just really incredible from that standpoint. And then also, like you said, one of the top few pioneers in crypto. And he's poured his heart life so much into the industry generally. I mean, of course, Kraken, but honestly, it's the industry generally which is, you know, in line with our mission, which is to grow cryptocurrency, adoption. And frankly, one of the things that I think is important about how we view that mission is we view ourselves as having a role and not, Kraken's not going to do it alone.

That's like the antithesis of what bitcoin and crypto are. It's a community, it's a decentralized network. So it takes all kinds of participants. But, yeah, I guess get into the meat of it. What's the past year been like?

Well, so first off, you know, I've been in crypto and, you know, I've been in Kraken for a really long time and then even in crypto for even longer than that. So I started back in 2013 and I founded a company, Glidera, that was acquired by Kraken in 2016. And so that, you know, puts me at what, like seven and a half years or so at, you know, today, as of today and at Kraken. So I've been with the company for a long time. Certainly know the business well, know the industry incredibly well.

Jason Yanowitz

Do you remember what employee number you were? You know, that's a good question. I don't know. We were probably not more than 50 people when I joined. I mean, there was only a handful of engineers.

Dave Ripley

There was a decent you know, there was a, you know, maybe a couple dozen people on our client engagement team and at least. And, you know, then all the other functions kind of probably added up from there. So. Yeah, so it wasn't, you know, I wasn't the, you know, the first 1st dozen or so. But yeah, it's fairly early and of course there was probably a bunch, you know, a handful of people that had, you know, joined Kraken and then left.

And so if you add those up, maybe I'm. Maybe I'm getting closer to 100 by that point. As far as, you know, where I. What's the, what's the, what's been the. Maybe I'll rephrase the question.

Jason Yanowitz

Like, the toughest part about being CEO of, I mean, the big exchange, like, there's probably a handful of big exchanges, right? There's binance, OKX, Coinbase, Kraken. I'm sure I'm going to upset someone because I'm missing someone, but you guys are in the select few and then in the US, it's really, I think, of Coinbase and Kraken. What is the toughest part about running a large crypto exchange? Yeah, just on that, you pretty much summed it up correctly.

Dave Ripley

We have really significant business in US, Canada, Europe, UK, Australia. Those are major markets. Make a huge portion of majority of the business, really, Europe and UK first. That's where we launched initially, first place. You could kind of like buy bitcoin with euros domestically and then with british pounds as well.

So. But yeah, I think, you know, look, I mean, I think this past year it was really marked. I mean, so one, it was bear market, right? And, you know, each bear market has been unique in different ways. And this is my third bear market.

And coming into this one, I came in with a little bit more optimism and a chip on my shoulder saying, hey, we've done this a couple of times before, we got this and so forth. But lo and behold, no, this one brought real meaningful and unique challenges. And what really were those on the heels of the FTX and other failures, you had this huge ramp up in, I don't know, pushback. Certainly on the regulatory side, that was a big piece, a bit of the chokepoint 2.0 for the banking of crypto companies. And then, of course, just the public perception, right, of like, hey, there are these failures.

I mean, I think a number of people in various different places, some in us government, like, looking to kind of like pin this on bitcoin and cryptocurrency itself, as opposed to failed trust specific, failed, trusted third parties, which, by the way, is the incredibly ironic piece of this, which is, you know, the whole premise of bitcoin and cryptocurrency is to move away from trusted third parties. And here are these, you know, failed, trusted third parties kind of given bitcoin and crypto a black eye, which is truly ironic because the whole premise is to someday move away from those. I mean, of course, take time and so forth. But anyway, so these are the various different pressures that arose. And, of course, I mean, here in the US, there's the.

Is really ground zero for where there's the most pressure, chaos, whatever, kind of simultaneously with this period, many of the other geographies, like Canada, specifically Europe as well, had already been, like, marching forward with various different regulatory structures. Right. Canada kind of had their FTX moment several years ago with Quadriga failure, and that kind of pushed them to put in the. Their licensing structure. Of course, in Europe, they have the Vasp registrations and now followed by Mika.

And so there's already a lot of advancement, which is in some ways, I mean, look, there's, of course, trade offs in some ways. The additional clarity is hugely beneficial, particularly as we look at it vis a vis the United States. But, of course, there's overhead and work and all these things needed to do to kind of, like, go through licensing processes and so forth. But the reality is all of these things kind of combined led to really a significant amount of lift on the business, whether it was navigating choke, .2.0 basically working with bank or bank existing bank relationships, establishing new ones, or whatever it is working towards, you know, obtaining licenses where there's, you know, new licensing and then unfortunately in the US, basically dealing with litigation and, of course, you know, the SEC and everything they're up to here. So it's really been a meaningful, you know, it's just presented a meaningful set of, you know, things that, you know, the business has had to do.

Again, the US being ground zero with, like, the activity here. But I guess the upside is, you know, for the most part, Kraken has navigated all of these challenges quite well and frankly, better than many of our peers out there. Right? And so we've kept all of our fiat rails up in custody, and we've actually went for licenses. And so, like, take, for example, Canada.

We went for the license there. A number of other companies exited. Our market share position went from, like, you know, mid single digits up to, like, nearly 50%. And, you know, so we just, like, have seen really significant success over this period in terms of market share over the 2023 period. Despite that, the overall market was down significantly.

Jason Yanowitz

I want to zoom into a couple different. I did happen to talk to a couple of Kraken employees and some investors as well to prep for the podcast. One interesting thought. So seeing kind of Kraken and Coinbase grow up these past several years, one thing I've always thought is, so it feels very clear to me that Coinbase kind of owns the retail, or Coinbase, I think does better than Kraken, in my humble opinion, on the retail side. But Kraken's pro experience is incredible.

I was mentioning before this, a lot of blockworks employees actually use the Kraken pro, are like very power users of Kraken, I would say. And I was asking a Kraken employee, why doesn't, why don't you guys just copy what Coinbase has done on the retail side? They say, look, we don't want to do that. If you look at our user, if you look at our users, we actually have different types of users. We have more like prosumer users where Coinbase has the 23 year old who just graduated college and just bought $100 a bitcoin.

So this was from a random cracking employee. I'd be curious to get. To get your take on this, on this Coinbase verse cracking dynamic. Yeah, I'd say that's partly right. I mean, for what it's worth, the piece, that's absolutely partly right.

Dave Ripley

Yes, we have focused meaningfully on Kraken, on those more professional advanced traders and investors. Historically. You mentioned the pro experience, but we were one of the first, if you dial it back, one of the first to go multi token, one of the first offer margins. We, of course, moved into derivatives a while ago with our futures product. And so we have, in fact, invested meaningfully in that area and we'll continue to do so.

We have more tricks up our sleeve for that particular group of clients. We think that is a really strong part of the business. And what it means is that if you compare Kraken to coinbase or some of these other companies are, um, you know, how, you know, that the stickiness of our clients, the retention of our clients is actually much stronger? You know, so what, when we see kind of these, you know, various different bull bear cycles, we don't see as much, you know, pullback from our clients over those time periods. And then furthermore, you know, there's just given the increased level of activity, there's of course, a, you know, a stronger relationship, higher ARPU, all those types of things for our clients.

But going forward, I mean, I guess. Maybe I actually pick on one thing. What is the Arpu, what is the ArPu comparison of Kraken versus coinbase user? Do you know that? Yeah, I mean, there's a few different ways to look at it.

Like, do you like strip out institutions or do you keep them in and a number of these different things. And we don't really disclose the specifics, but you could think about it as several multiples, three to five x. And it's for this reason, though. I mean, I think probably like, you know, the strong investors out there probably would almost guess this, you know, if you just described our type of, you know, client where we're the strongest and so forth. But, but the reality is, is that we have, you know, since a handful of years ago launched a product and experience that is much more catered towards, you know, consumer retail and individuals.

And, you know, the way we're thinking about that product and its approach is, you know, look, Coinbase, of course, has been in that, that segment really deeply for a long period of time. And, you know, they, they, of course, have their reputation. But I think there's a great opportunity for a lot of the things that we built in pro to, like, consumerify them and make them really simplistic, whether it's, you know, you know, things like margin trading or any of these types of things, and find a way to make it really simplistic and understandable and bring the right education and service and all these other pieces for consumers. And we think that that's an opportunity out there, just given that we've done all of these things successfully for an advanced trader and there should be an opportunity to do that more for consumers. So I do think going forward, we have been growing that segment which is kind of like the non advanced trader, more of the individual consumer retail investor or what have you.

And I think we're already seeing really good success, really good growth there. And I think there's a lot more that we'll continue to do to expand in that way. And we'll probably hopefully do it in a slight, somewhat of a different way where we leverage some of what we built on the pro side and these various different things to really have a nice experience for clients. Nice. One thing that I've noticed you guys doing differently is Jesse was very anti marketing as someone who tried to sell him sponsorships and ads for many years and was never successful.

Jason Yanowitz

And he brought on this, like, I'd call, I'd call it a fancy CMO from Spotify. Mayor, I think is his name, who seems incredible. And you guys have done these big outdoor like out of home campaigns. I think in the tube you have sports, you've done Williams. You guys brought your Williams car to permissionless last year, you know, got this like you're doing the bankless sponsorship.

Like how has marketing been? This is really the first like I'd say twelve to 18 months that I've ever seen you guys market. How has that, how has that been? Well, you know that, I'm glad you asked because it's the part that I like left out, maybe not intentionally so kind of like just, you know, when I was talking about the most recent twelve months and the market share gains and so forth. So yes, we were navigating a number of these challenges with banks and regulators and going for licenses and staying in markets while peers were pulling back.

Dave Ripley

But the other thing is that you hit the nail on the head. We started marketing for the first time ever. Okay, we had done some marketing before, but really not significant. And I'm glad you mentioned Meyer Kraken, chief marketing officer, who's been here roughly a couple of years now. And really that first year was a lot of really foundational team structure starting to move the ball forward in a few different areas of marketing.

But then in the past twelve months we did actually ramp up. And so it wasn't a huge amount of spend that we brought during this bear period, but we actually increased our marketing spend meaningfully into the bear market in terms of absolute, not just in terms of percent of the total, but even in terms of absolute dollars. And so that was like, and we were doing it with the right team and we did continue to do it fairly. I don't know what the right term is, but methodically or we look to really build in the right way here as opposed to just kind of jumping out a couple stadium, stadium naming rights deals or what have you. But it's really all of the different components.

That was also likely one of the big drivers of why we saw positive market share over that period. It was like we were going in the opposite direction on marketing as everybody else. And so we really saw it with a strong new client acquisition and a number of really good things over that period. Yeah, what's the old saying about marketing? It's like 50% of your marketing works.

Jason Yanowitz

The problem with marketing is you just can't tell which 50% of that is. Well, it is challenging, right? I mean there's an ebbs and flows there on the marketing side, we kind of went from world, I think, back in the day before I was even like, dealing with where there was like, no clue on you do these ad campaigns and tv ads and radio or whatever it was. And then we went to a world where there's like, really tight performance marketing, paid advertising direct to client. And I think that's being like, somewhat challenged now just given like, how much data is, you know, shared by the various different, you know, companies out there that you do paid advertising with, but nonetheless.

Dave Ripley

Yeah. Really, really, you know, that that certainly is a challenge. I mean, that that's almost the whole game of like, you know, testing and trying a number of different approaches, areas to, you know, advertise. I mean, I guess it's a little bit more on the growth side and product side and you make some of the bigger bets on the brand marketing side. Yeah, I want to talk about some of the products in a sec.

Jason Yanowitz

You guys had a, you had a tweet about, I want to talk about Kraken Bank. I want to talk about the wallet that you guys just rolled out. But before I do that, if I were you guys, just. The last thing on Coinbase is like, Coinbase is public and you guys aren't. Yeah, and I'd be looking at the success of Coinbase.

So I've got their stock bottom down at like, I don't know, $50, $60. It's now trading at 225. They've got earnings, I think this week, market cap of 54, 55 billion. Like, if I were the board of Kraken and if I were Dave, I'd be like, all right, like, this is kind of our, you know, we, you know, we've been private company for eleven years. Like, this is our time to shine.

How are you thinking about just like a liquidity event, either an IPO or like an exit this cycle? Yeah, I mean, it's, it's, of course, out there, you know, so one is you. I don't know, you've probably heard this song and dance from many others that you can only get so specific on these types of plans, so can't really share, but certainly is out there. I mean, from a financial profile standpoint, Kraken is big and profitable and certainly larger than many other public companies out there. So that exists.

Dave Ripley

Of course, there's more to it than just that to go public, and there are also implications of it, but it's one of the many things out there with regard to investing on the private or public side that is absolutely on our list. As something in the future, do you. Think it's a higher likelihood that you guys sell, or I guess the range of buyers is actually pretty small because you guys have such a high valuation. But is it a higher likelihood that you sell or that you ipo? Steven, just taking the topic directly on a sale or an acquisition, there are a huge number of things to get, get right on such a thing.

And you're right, the valuation is higher. And so that leaves your leaves. It leaves us at a place where it's like maybe a lot of traditional finance companies that would have that level of pocketbook to go and buy. Of course, they're not ready to come into crypto anyways. I mean, you think about, like, a big bank or whatever, and then there's all kinds of different questions on whether Kraken would be a great fit for those types of companies or not, of reasons why you might question that as well.

So, yeah, I mean, I think it's, you know, I mean, I think while, you know, obviously, if there was some, like, you know, big m and a offer, you know, inbound, it's not like we would just like, you know, I presume, ignored, out of hand, but there's, you know, this isn't, this isn't the goal for the business. We think, like, driving Kraken as a, you know, as a successful business, it can grow to be incredibly successful, already has and will continue to grow to be incredibly successful all on its own without necessarily going down, you know, the m and a route. We think we just have, like, huge number of, you know, opportunities to really make it, you know, an enduring, incredibly successful business, certainly irrespective of, you know, being acquired by somebody else and then even irrespective of, you know, IPO as well. And that's like, you know, number one, what we're focused on, and we, we know it to be, you know, possible and, and the, the outcome that's going to happen. So that's what we're really, really driving.

Jason Yanowitz

Nice. Um, well, that's exciting, man. Uh, how do you describe Kraken to, I'm going to, I know you did not just tell me anything about an IPO, but, like, let's, let's. I'm going to make up that you guys were ipoing. Um, and I'm trying to almost picture, like, you at a roadshow and trying to describe Kraken's business.

I imagine it'd actually be quite tough because the crypto exchange, as I see it, kind of sits in the center of the spectrum. On the right hand side of the spectrum is like moving more and more on chain like the self custody wallet that I want to talk to you about and all that kind of good stuff. And then on the left side of the spectrum there's like, yeah, you guys rolled out this like state chartered full reserve bank. Like, yeah, you're, you know, that is like, that's a bank. That's the other side of the spectrum.

How do you describe like someone sits down with you large institution and they're like, Dave, what is kraken in like five to ten years from now? How do you describe. Well look, I mean like the jobs to be done for our clients, you know, actually involve both of those, those types of things. So it's really, it's really the first 1st piece is like what I'll describe as building the bridge. I'll come back to that.

Dave Ripley

You know, number two is bringing our, bringing our clients more more investable, tradable assets, more access to various different parts of the crypto ecosystems and so forth. And then the third piece is just giving them an incredible experience, incredible user experience, value of products. Also for us service to be able to navigate it all, understand it all, digest it all in. This cuts, as we talked about before, for professional traders, an incredibly fantastic pro experience. But then for the other segments we go after just the same, providing them the same incredible user experience that fits their needs and so forth.

So those are the three jobs to be done. And in these three I think it's like we basically get at this dynamic where it really ends up being both. And so first the bridge. So what's the bridge? The bridge is from tradfi to crypto, right?

Where this bridge, from this legacy system to this, to this new incredible decentralized ecosystem that is growing at an incredible rate with tons of new innovations and so forth. But in order to be a bridge, it's kind of a least common denominator. There's a ton of different pieces that are really necessary to integrate with tradfi. I mean, in order to do that, I mean, reg, compliance, banking relationships, security is fundamental to all these different pieces. Custody actually ends up being a meaningful piece to really pull off the, the bridge because that's what's necessary in order to actually provide a way to get from fiat to crypto.

All of those foundational pieces of being a bridge are really meaningful. And yes, that's where a custody license comes in. And a number of these different pieces that we do, we spend a huge amount of effort and resource on regulatory compliance in all of our major markets. This bridge that we talk about is really, I guess it almost pulls in the geographic piece, which is, hey, for us, that's Europe, UK, uS, Canada, Australia. We'll potentially add to those geographies over time.

But our model is to go deep, is to support, if we go into market support, the domestic fiat currency, localize, provide that. All these things lead towards the last element. They provide the foundation to have an awesome client experience. And so we're kind of thoughtful about when we're going to expand and add to that, because it is a lift to do so. The second piece is where you're kind of the other side of the coin.

And the question is, look, we want to build more and more access to more and more investable, tradable assets in crypto and more access to all the things you can do in crypto, which for us is a lot of it is. It's a value network, a financial network. A lot of this has to do with investing, trading, finding ways to earn all these types of things, and a meaningful way to do that. I'm sure we can add more tokens to our centralized exchange and provide more custodial staking and so forth, but a big way to do that is to actually move on chain. This is an open ecosystem.

Innovation is happening quickly, we think is going to accelerate. One of the great things about the two more meaningful use cases, I'll say, of the last cycle, DeFi, defi summer, and then really nfTs. But digital art and PFPs really were the trend of where we saw the growth. They were both meaningfully on chain, which was awesome in different than previous cycle, where it was like icos and centralized exchanges. And that's how I drove.

So I think that we're looking forward to that happening even more so going forward. And so for us, the wallet's a meaningful piece of this, and providing access to all these, I mean, whether it's trading and investing into the long tail of cryptocurrencies that we would never list on the centralized exchange, just from a resource standpoint and whatever else it is to a number of other things in the crypto space. And so I think both of them really are meaningful because that bridge is foundational on the first job to be done and then the second one of providing access to more of that. That definitely means going on chain. Nice.

Jason Yanowitz

Farthest end of the spectrum is crack and launching an l two. So I just have to ask you about when I saw you guys launch the self custody wallet, the first thing that came to mind was, that's really cool. I got to check that out. The second thing that came to mind is, I mean, Kraken's got to be thinking about launching their own l two on the success, seeing the success of other. Of other exchanges.

Yeah. How are you thinking about, you know, a Kraken l two? Yeah, I think a couple of things. So one. Yeah, you know, first on the wallet, I mean, absolutely.

Dave Ripley

We're totally excited about that. It's like, you know, one of the great. By the way, it looks really, really good. Yeah, the UX is incredible, which is, you know, definitely something that we're, you know, really well, really looking to hang our head on a really meaningful piece of this company going forward. It's open source.

A good portion of this stack is open source, which is different than many of the other, I think maybe all of the other kind of like similar peer type companies that have launched wallets, that have launched a crypto wallet. But, yeah. With regard to your more significant question there in an l two. Yeah, for sure. I would say l two s in general are, you might say that's one of the big areas of this cycle.

To the extent that we're kicking off a new cycle here, it's one of the big areas. There's a lot of investment in l two s. There's always been a lot of investment in scaling, whether that's base layer or additional layers. And there's certainly a lot of activity here. And I think one of the things that.

And there's, of course, this trade off when you go l one, l two with respect to security finality, all these various different types of things, you get more transaction throughput and scalability, and I think that's actually meaningful for the industry to continue to test that spectrum between the two and find the right balance. There's no question that the bitcoin mass, you know, most I could say, like, secure, decentralized, whatever it is, is like the core of what this value brings. But, like, looking to think about layers on top of that, whether it's lightning or, you know, certainly anything else on Ethereum or Solana or whatever, you know, l two s are really meaningful. Where does crack and play? Yeah, we haven't announced anything or, you know, any, like, anything specific with regard to, like, you know, building our, our own l two.

But I'll say for sure much the same as I mentioned before with regard to, you know, jobs to be done and so forth. But, you know, being part of this in some form or fashion is absolutely. You know, a goal for, for Kraken. Right. You know, whether it's providing access to many l two s, you know, building our own, uh, l two and sequencer, any of these types of things.

I mean, our, you know, we hope. We would like to think that, you know, we approach a lot of these things thinking, you know, fairly broadly of the different opportunities out there. All right, I mentioned them in the pre roll. Now I'm going to bring them up again. It's arbitrum.

Jason Yanowitz

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You can see like the revenue or the whatever you want to call revenue expenses is probably the wrong way to look at it. Emissions and fees or whatever of base. And I was like, oh man, Dave. Dave's got to be thinking about l two s somewhere. Another.

Dave Ripley

Yeah, there, there are, there are a lot of fees flowing through that. There are a lot of fees. Yeah, yeah, we'll see the late. Yeah, it'd be interesting. How do you weigh the, like.

Jason Yanowitz

I mean. Yeah, like, looking at the, like, fees, it's obviously ridiculous. They're making a lot of money from it. But, like, the other side of that might be, there's a, like, concern on the regulatory front. And you guys, I mean, you.

You had a, like, a few run ins with the SEC. I think the first one you settled, the second one you pushed back and said, we're not going to settle. I'm sure there's. I don't know. I really don't understand how the game works.

But, like, how do. How do you weigh the, like, pros, I. We have an l two. We have our own chain. We can either capture the Mev or the fees or whatever it is.

Cons is, like, makes it harder to ipo or get acquired like that. How do you weigh those? Yeah, I think. I mean, I think when it comes out, I mean, just to, like, maybe just, like, take that IPO thing, when we're really specifically, like. Yeah, I mean, look, I mean, for sure, we're oriented towards serving our clients, building the biggest business we can, achieving the mission, all those types of things.

Dave Ripley

And, you know, an IPO is more of a means. It's not the end game at all. Right? And so that's how that factors in. But that, irrespective of that, there's a meaningful regulatory compliance question for any of these new innovations out there.

I mean, we. The way it works is we have an enormous team that spends all their time on this. Right. You know, we have 60. 60 ish legal team, you know, 250.

Jason Yanowitz

People on legal now. Yeah, 250 plus. Is Marco Santori still running that? He is, yeah. Yeah, he runs that.

Dave Ripley

Runs that legal team. You know, 250 plus on the compliance side. I mean, just really a meaningful investment in this area. And, you know, when you swing to the legal side, I mean, they're. When we.

When we think about these new, new technologies and innovations, it's not like there's. There's not like there's any, like, for the most part, you know, think about, like, an l two or whatever. L two running a sequence. There's just nothing out there with regard to specific regular regulations and guidelines or what have you for a number of these different things. And so you kind of have to say, like, okay, well, let's look at the.

Let's look at the actual law here and do that. You know, make sure we're, you know, applying that law to any of these new innovations is really what any innovator has to do in an area that's poking around something that's, like, you know, somewhat regulated or whatever. And so, you know, that's what that team does. They do an incredible job of it. And, you know, they, of course, partner meaningfully with our product team, business teams and so forth to, you know, iterate and understand what we're actually trying to build and might even influence it to some extent.

How we build it. Of course, it influences whether we build it or not, but, you know, it definitely influences how we build it also. I mean, also influences what, like, where we offer it, you know, so this ends up being, you know, given laws are tied to governments and governments are, you know, countries, and so it ends up being a geographic question as well. So, yeah, there's a lot, a lot there. Like, we often say, like, much more than, you know, much more than you would have probably ever envisioned, you know, long, long ago.

Jason Yanowitz

Yeah. Yeah. By the way, Marco Santori still has, there's a podcast he did, I think it was 2017 or beginning of 2018, on Laura Shin's podcast Unchained, still one of the best episodes. I remember that being, like, a very pivotal episode for me in 2017. Oh, really?

Yeah. I was like, oh, these, remember? I see. It was like, during all the icos, Marco's like, yeah, a bunch of these are crap. But, like, there is something here with these tokens.

I was like, oh, all right. Yeah, it's interesting. I mean, that really, really was the outcome, right? I mean, most of it, those 2017 icos were ridiculous. But, yeah, so what?

I mean, just zooming out from Kraken because I'm going to stop annoying you with trying to unveil your top secret Kraken plans here. What do you think ends up happening to centralized exchanges as more and more activity goes on chain? Yeah, I mean, they. Well, it depends. I mean, it depends what type of centralized exchange you're operating.

Dave Ripley

I think so. I think for a centralized exchange like Kraken, where we have this business where we're a bridge, and then we're also looking to provide access to as much of crypto as we can. We become, like, you know, increasingly, increasingly successful, and it just continues to, you know, we just hit, I mean, it's escape velocity, and we just grow and grow and become really successful because, look, look, I think more and more activity on chain is awesome from Kraken's standpoint, and we even think that's awesome for our kind of, like, core centralized exchange. That is bridge business. Right.

The more use cases there are, the more reasons there are to buy, invest in, trade, use, crypto and other decentralized assets. The more and more significant the demand is for really all of Kraken's products. I mean, none of them really go away with any of this, and particularly the bridge, because there's however many, I don't know what call it, 500 million people have touched crypto so far. But a huge portion of those are just like, I bought a very small amount of bitcoin or ethereum or whatever, or dogecoin or whatever it is from the last cycle, and you barely call them in the ecosystem just yet, just really scratching the surface. And so when we think about the number of people out there, I mean, they're all going to be coming from tradfi.

They're coming with their fiat. What can we get away from fiat? What's going to move to crypto? And that's what, you know, that's a big part of what this, this bridge means. And so I think that's going to be incredibly successful.

We think, you know, the more activity on chain only expands for Kraken. We will also provide direct access to a lot of that stuff on chain with great security, great service, all these various different things. And so I think it really is a fantastic outcome. And we were encouraged by every, I mean, I specifically, I mean, I'm, when I go look at the volume numbers for decentralized exchanges, I'm always, like, cheering whenever I see those numbers move up. And even if I see them move up as share of total, vis a vis centralized exchanges, I'm like, fuck, yeah, this is, this is good.

Like, you know, this is what we want to see. Yeah, yeah. I mean, it really is. And so, and that's true of other use cases as well. And so, I mean, I think that's something that's, you know, Krakenites at our company really, really get this and understand this and root for this just the same.

Yeah, that's cool. What do, um, maybe shifting gears a little bit. What do you think about the Nasdaq? Or was it Nasdaq or NYSE? I think it was.

Jason Yanowitz

NYSE is considering shifting to a 24/7 trading model here. Wait, let me pull up this. Yeah, I think it was Nyse. I'm not, I think it was the first, they were the first ones to mention it, I think. Yeah.

Okay. So the iconic bell of the NYSE has been a symbol of the financial world for the past century. Every Monday through Friday, 930 to four bell rings the NYSE is now contemplating a move towards 24 7365 stock trading shift. That would mean the stock market never closes. What do you think about this?

Dave Ripley

Yeah, I mean, I guess. I guess two things, you know, kind of surprising that you haven't seen this earlier, which, I don't know. I mean, maybe there was, like, some small mentions of this and pockets of NYSE or NASDaq or CME or whoever, but it doesn't seem like it's been, like, something really stated with, like, authority or some level of, like, hey, yeah, this is really something that should be considered. Yeah, it's kind of surprising. I mean, you know, 24 7365.

Let's just. Let's just, you know, for a minute. Also note the fact that, like, 24 7365, like, is a very local country way of thinking about something, right? Because not every. Even hat, not everyone has the same 24 for sure, right?

We're all on different, you know, time zones across this whole planet, and, you know, this is a very global world, and we're not even all on the same seven. Right. Some countries in the world have different days for weekends, and we're certainly not on the same 365 with respect to holidays and seasonality and all these types of things. So it's like a very non global way of thinking that 24 7365, by definition, is like, hey, this means global, right? You know, thinking in a world that is not global is.

I mean, it's very years ago, decade ago mentality, I think, because the world is going to become more global. This is one of the reasons why cryptocurrency is bitcoin. Cryptocurrency are such meaningful innovations, is because they solve for this global dynamic, and they probably solve for. They solve for the. And this is where I get to, what does it actually mean for NYSE?

They solve for it in an incredibly elegant way by just, like, creating a new system that is, like, actually built to be global, whereas kind of, like, trying to retrofit or upgrade this, an existing system to be global, 24 7365 might not be that easy, right? So they can do it, but, you know, the only way to, you know, get funds on and off those on and off, you know, NYSE might still be kind of held up in the old nine to five, Monday through Friday world. You still got the broker. You still got the brokers. You got the brokers.

I mean, you have the actual fiat money movement that isn't going to be. Going and trading on Nasdaq. Right. It's not like a crypt. Yeah.

So I don't know. I mean, hey, but, you know, maybe they can, you know, start unpacking that and, you know, incrementally moving in that direction and so forth. But I don't know. We'll let them sort that out. Okay.

Jason Yanowitz

Fast forward five years from now. Do not NAsdaq and IZ support crypto trading. Oh, what was the timeframe? Five years. Five years?

Dave Ripley

Yeah, I mean, I think pretty likely, I would say. Yeah, I would say. I would say fairly likely. I mean, one of them, you know. Well, let's see.

Wait a minute. Both of them, I mean, all three of them are like, there's four big ones, right? There's Nyse, which is owned by ice. There's Nasdaq, there's Cme, and then there's Cboe. You already have CBO in and now exiting, I think.

And I think they've done that a couple of times. CME has kind of been in there with futures for a while now. Nyse, there's ice, and they kind of, like, funded, founded, backed Nasdaq has actually been. But they have such a bad experience with Bakkt. They did.

And CBO shutting down as well. Right. I mean, as far as I understand. Delist any day now. Yeah, exactly.

So it's an interesting dynamic. Right? Like, I think the answer is, and we know, you know, just from, like, various different articles out there and so forth, that Nasdaq has been, like, building and investing in this area, although I guess maybe not launching or pausing and so forth. So I think that. But the reality is, is it really isn't due to adoption in the ecosystem.

We see the ETF's just came out with huge, you know, adoption by a number of big tradfi in the US. Those have been meaningfully successful, you know, most would say by any measure in terms of adoption and so forth. So I think there's really a couple things at play. One is, you know, it's not necessarily that easy. I mean, it's not just that easy to, like, snap your fingers and, you know, launch one of these businesses.

Maybe you could build the products. To some extent. This sums it up nicely for anyone who's not. Okay, yeah, that's what I was talking about. Yeah.

Jason Yanowitz

For anyone who's not watching on YouTube and just listening to the podcast, Nasdaq is repurposing their crypto tech to become carbon to become carbon technology.

Nasdaq will repurpose crypto tech to develop markets. Exchange operator scrapped crypto custody plans this summer. Tech will be redeployed. Co presidents yeah, exactly. That was it.

Cycle behavior. And, yeah, part of it is probably a cycle. They're looking at like, okay, what's the potential demand out there? What portion that demand are we can get, which I think is like the biggest, biggest question. And then, you know, what's all the investment required to do this?

Dave Ripley

And, you know, they kind of ebb and flow on their analysis there. And I think they, you know, they move in and then they realize, you know, maybe how hard some of this is to build. And then they probably realize also like, hey, we're not just going to like magically get demand for this stuff right out of the gate because there's awesome companies like Kraken and our peers and so forth that, you know, have already solved tough problems and they're built products in a kind of like crypto first way that, you know, we really understand these individuals and all the various different segments out there. And I mean, this is cracking in some of our peers and so forth. So I think there's a big part of it is that, but I mean, look, I don't think it's like a complete null set on whether any of these like traditional finance or services firms are going to be able to like enter and be successful.

I think they're already have intention to enter bitcoin crypto just going to continue to grow. The incentive to do so is going to continue to be there. We see some that are finding places of success. I mean, even say, I would say CME futures have been successful on this kind of trad five side. I think many of, okay, fidelity has kind of like long been around the space and is now seeing even more success with their ETF.

Obviously Blackrock jumped out. And so, you know, while it may not be, you know, Nasdaq apparently exiting now, you know, you don't point to them as successful. But, you know, I think there are some companies and, you know, it seems to be like generally some that have like come with like different offerings. I mean, if you, to the extent you call the fintechs trad five companies, they've seen some success. So block, cash app, Revolut, PayPal.

Paypal, great. Interesting. They kind of came with their stablecoin, which I think is interesting that they made that move as opposed to just the straight up simple buy bitcoin and crypto in the wallet. You have any advice for? I mean, you've been in.

Jason Yanowitz

When did, when did you say you started glidera and then got bought? 2013. Yeah. Do you have advice for folks who maybe this is their first or maybe their second cycle, being a founder or a CEO or an operator. Like, how do you think about operating through cycles and, like, how, how much to put right now?

When do you actually ease off? Like, do you ease off before? How do you think about just operating through cycles? Yeah, well, this is one of the things that we've, like, really been dialing in more and really thinking about intentionally much more so recently, you know, and somewhat driven by learnings from, you know, previous cycles and so forth. First off, I think it's like, really challenging to build a business in this space where you experience these areas.

Dave Ripley

Yeah, exactly. I mean, for all kinds of reasons, but just on this particular one, one of many. But the scalability piece of like, hey, we have this business that's going to do a, you know, Ten X or even 20 x within a twelve month period. First of all, meeting that demand and handling that demand, that's a huge set of challenges. But then on top of that, it's going to, you know, pull back 50% plus potentially in, with respect to client demand and what have you for, you know, a subsequent period that immediately follows that period.

This is really actually quite challenging, um, from a, you know, there's a, there's the question on technology platform, and can your, can your platform just simply scale and, or does it, you know, come to its knees and, you know, people are unable to access, log in, you know, see all kinds of different errors or what have you, bugs. Different things crop up once you try and put Ten X to load on a platform. And so that's one, that's one where we've invested, like, meaningfully in honestly, like, like, really meaningfully. Like, we went from, like, almost, I would say, like, unfortunately, I would say almost worst in class back in like, the 2017 ish time period to best in class. Like, if you look at our uptime, our stability, our response time, all of these different types of things, we're like, absolutely market leading now, which I don't know if, like, folks really, like, really understand.

And we've marketed it very well because we did come from a place where we probably had more issues in the 2017 bull run than most others, and that probably sticks in some people's minds and so forth. But, like, we've invested meaningfully here and we're like, really top of the market in terms of, you know, tech platform performance. Yeah, I'm convinced there's no good way to market that, by the way. It's tough, right? Yeah.

Yeah. I don't know the best marketing is. When it just works. Yeah. If you can market that.

Jason Yanowitz

Yeah, it's very tricky. It's really like, I think probably the hardest part of my co founder's name is Mike of Mike. And my job oftentimes is like, I remember in the heart of the bear market, we were telling the company to, we're like, we need to hire now. Like, as soon as we saw little signs of growth and like, end of summer of 2023, we're like, we're foot on the gas, we're starting to hire now and we're like, it's going to see, it's. I know it seems insane, but we need to hire now because the talent pool is like the best we're ever going to find and then it's going to get insane to find talent.

And now we're saying the opposite thing, which is like, well, we're still hiring right now, but like, at some point in like, let's say, twelve months from now, everything's going to be ripping, everything is going to be going amazing, and we're going to have to say, hey, this is the time to start slowing things down. It's a very weird dynamic. It is. There. You take us to the next piece of this equation, which is much more difficult to scale people in a team than it is to build a technology platform running in data centers that you can scale.

Dave Ripley

And so we think about this in like a few different buckets, but maybe I'll just like, break it down to a couple, couple ones. One is we do have a portion of our team that is like very much impacted by, you know, an increase in ten x client demand. And so these are individuals that are providing, you know, our client engagement team that provides direct support to clients, our operational teams that help with onboarding clients, fraud that's tied to level of transaction activity, fraud operations team. So a lot of these operational teams, these we think, what are all the different levers that we can have in place? What's the playbook that we can have in place both for when we start seeing these volume increases to increase the size of that team very quickly?

How flexible can the teams be from that standpoint? Of course, what can we look to push even more and more towards? Automation, AI, all these various different pieces that, well, frankly, again, puts you in a place where they scale much more quickly than being able, then having to add a lot of people. But inevitably that's what we call them, the volume based part of our team that's really tied to. Then there's some others that are not quite as much so if you think about product and engineering, yes, there's more demand and there's more opportunity to build new products and so forth.

But like, frankly, like, you know, adding team members here is an even, it's just more time lag. Right. So, I mean, it's not just, you know, to recruit an engineer is, you know, a significant amount of time you get, make sure we, you know, get fantastic talent in, but get them in, train integrated in the team, performing all these types of things. I mean, by the time a lot of those things happen, I mean, you're well into the bear or the bull cycle anyways, right. And so you're almost looking at.

So I think it's like for those functions or those parts of the business, I mean, ideally from a culture standpoint, talent standpoint, retention standpoint, you ideally find a way to be much more balanced in how you grow there. I mean, even potentially adding people still in a bear market to grab opportunities that are out there where other companies might that took a different approach, might be struggling more. So. And so, yeah, I mean, I think there's a lot to be said for basically handling these challenges on both sides and getting the recipe right. And I think it's one thing that we actually, we've certainly learned a lot over the years.

You know, having done it, I think it's like, frankly, it's kind of in and of itself a differentiator. The fact that we have this, at this point, I would say much more figured out than really, a lot of other companies out there. Yeah, there was. The coinless CEO tweeted this, I think it was this weekend or something, and sparked a nice little Twitter conversation. He said, having talked to a number of founders and CEO's, recently, interesting that it's universally agreed upon that the worst people to hire are crypto natives.

Jason Yanowitz

And the best people from outside who build an active interest and respect for the space are the best people to hire. And I could not disagree more with him, actually.

Dave Ripley

Yeah, this is quite, I would take. The exact opposite take, I think, and I'm just, yeah, well, I shouldn't, maybe I shouldn't have said my take because I want to get your. What you think, but you carry, but it sounds like your mind's made up on this one. Yeah, I mean, my mind's made up, but I'm curious for other operators, like, how do you think about the. There's a trade off when you hire.

Jason Yanowitz

Every time you hire, there's like, yeah, you hire with experience. They have experience, but they don't know crypto, or they know crypto and they don't have as much experience. Yeah, sometimes you can find the third, like, the coveted unicorn, where they have both, but often making that trade off. And I'd be curious how you think about that trade off. Yeah.

Dave Ripley

You know, so, I mean, there's so many different dimensions on how to, how to break this down. So, first off, on, like, crypto expertise. Um, this is, um, this is one of our operating principles, one of our, you know, four main operating principles that we lead with. This is one of our values, even. I mean, it shows up in our culture document that our culture is based on kind of, uh, crypto ideals.

So it's like, it is, like, incredibly meaningful to us. And absolutely, we think that it is, you know, important to, um, you know, to be, know, top of our game and top of the industry. With regard to crypto expertise, I do think it comes in both forms. I mean, I absolutely think it comes in the form of people that have been in the industry for a long period of time. For sure.

You know, I guess you and I are roughly in that boat, right? And we have a lot of people at Kraken that are in that boat. And I do think there's absolute piece of this, but there's nothing that I enjoy more, really, than, like, seeing someone who comes into Kraken who has a ton of belief in the mission, interest in crypto, but he is, hey, their expertise level isn't the same as someone who's been in crypto for ten years, but they're really interested in looking, diving in with everything they got to build expertise and understand the industry, and they're doing it even on their free time and all these types of things. I think that is really special as well. And what I would very much like to see, what I very much like to see at Kraken, I think it's a combination of the two.

Yeah, there may be some other expertise you get in other industries and so forth. Whether it's someone who was in Tradfi and saw the light is ready, knows that Fiat is on its way out and crypto is on its way in. I mean, we see that for sure. And I think so. There's a number of people, I would say from a number of different groups and backgrounds, but hopefully the one consistent piece is that everyone is really bought into our mission, driving forward to learn and consume as much as they can about crypto and industry and education and everything.

Jason Yanowitz

Last, last two questions before I let you hop here. Just maybe zooming way out and just thinking about the cycle as we know it. Just curious to get your take because you've been in the industry for so long. Every cycle ends with some big blow up. Like the last cycle.

I think you could say maybe the 2017 cycle was like the ICO blow up.

Last cycle was probably, I would call it like a leverage blow up with like, Celsius and blockfi and terra Luna in actually some ways was like a leverage blow up. And then, and then FTX was just a fraud, obviously. But, um, yeah. Do you have any, like, early signs of what you think, like, could be the, like, things that you're paying attention to right now where you're like, ah, looks good when numbers going up? Like that seems like the scary thing?

Dave Ripley

Well, you know, that's about what you can do at this point in time often is like, okay, well, look where things are, like, really going. And then, you know, and then you get to this place where it's like, oh, well, you know, they're, they're potentially really going up because there is something there and it, you know, it is really interesting. But then, you know, it gets to a point where it's like, okay, things have gotten ahead of itself, you know, ahead of themselves, and therefore it's, you know, there's leverage kind of crept in or whatever it is to the, to the system. And so, I don't know. I mean, this cycle, where are we really seeing the, the activity?

I mean, I think there's like all this, you know, there's a lot going on with, you know, all l two s and scaling and, you know, kind of new applications on that front.

There's a lot going on with, you know, restaking in some of these various different new mechanisms with restaking still some activity with like, you know, stable coins, both, you know, kind of on chain algo state stable coins or whatever. So, look, I think probably the real answer, though is I don't think it's really clear, though, what the big catalyst and drivers are of growth for this ecosystem, and probably even less clear where there's potential for something to really get ahead of itself and come crashing down. We're still, frankly, early. We just hit the halving. So if we do repeat this four year cycle, we're still know, quite early.

So we'll, you know, we'll kind of see how things play out. Last question. What is your expectation of, like, how long this cycle lasts and what the cycle looks like? Yeah, you know, it's interesting. I've heard, yeah, I've, I've definitely heard cases to be made on both sides of the spectrum.

On this one, like, oh, you know, we're, we're starting earlier now. We hit the all time high before the halving the cycles of increasingly front run the previous one, which somewhat makes sense that traders, investors lean into cycles. If they expect it to come, they'll lean into it earlier. I've certainly heard that there's also dynamic that each cycle is a little bit more muted than the previous one. The high is not quite as the new all time high is nowhere near as significant of multiple.

The previous one is the cycle before and so on and so forth. And similarly, the pullback isn't as significant. And so that kind of like leads you, you know, that what that set of logic leads to a place where it's like, hmm, you know, maybe it'll just be a bit more muted, just kind of, maybe last a little bit longer, but not be quite as crazy and, and so forth. So look, I think, you know, I think this, this dynamic that we, you know, are leaning a little bit earlier into the cycle now, you know, is probably meaningful. And, you know, we already have the ETF catalysts, which I think are kind of just a mini catalyst, if you will.

I think there's going to need to be like, you know, something like bigger, probably on chain, you know, some of these different things really getting meaningful to, you know, drive, you know, even more adoption going forward. And so, yeah, I think that's probably where we'll head. Nice. Dave, pleasure, man. This is, this has been great.

Yeah, yeah, likewise. Great, great connecting with you here. Really appreciate it. Yeah. Enjoyed.

Jason Yanowitz

All right, be well, man. Talk soon. Thanks, everyone. Jason here. Thank you so much for watching today's episode.

Wanted to take a quick second to thank today's title sponsor, Arbitrum. We know you are tired of on chain experiences that have unaffordable fees and frustrating transaction speeds, and that's why we partnered with Arbitrum. You can experience frictionless trades, lightning speed, and lag free transactions, all for pennies per transaction. Explore Arbitrum's expanding ecosystem at portal dot arbitrum IO. That's portal arbitrum IO.

See you for the next episode.