Kraken: the unsexy crypto exchange

Hi everyone 👋

TL;DR: We did an interview with David Ripley, the COO of Kraken—check it out here.

Kraken and Coinbase looked like "just exchanges" with the rise of DeFi on-ramps like Celsius and Stablegains that offered high APYs on user deposits, but now, its those "just exchanges" that are still functioning businesses.

The exchanges represent the old guard of crypto on-ramps: users make money by buying and holding or trading crypto. The exchanges custodian user funds like a bank and take a cut of each transfer or purchase. 

With DeFi, we saw a new killer consumer value prop for a new type of crypto on-ramp: users make 15-20% APY just by transferring funds into their Celsius, BlockFi or Stablegains accounts. These products take in user funds, stake them and lend them out, and charge a portion of the interest as a management fee.

What we’ve learned with the blowups of 2 out of 3 of those products is that ultimately, 15-20% APY made for too high of a CAC and negative unit economics.

Now, with a possible crypto winter setting in, we may see the stable, “unsexy” business models of the “just exchanges” coming back into style.

We talked to David Ripley, the COO of Kraken, to learn more about how Kraken thinks about its positioning in the industry and the future of the crypto exchange business model:

It's a balance. While there's a huge value in leaning into the innovations, leading into new use cases, and bringing more options and opportunity to our clients, it’s important for us to maintain a really high degree and standard of security. Before we add any new token or new part to the platform, we take a deliberate approach from a security standpoint to ensure the experience is right and the security is on point… There's a lot of market risk and price risk with a lot of different assets in the cryptocurrency space. (link)

In the past, nearly 100% of the first interactions that anyone had with Bitcoin and Ethereum came through an exchange. You're now starting to see that changing… What we’re on the precipice of is a place where individuals will first get into crypto via a use case, whether that’s gaming or a decentralized virtual world. It’s still a small number, as most of those people have probably already bought some Bitcoin or Ethereum… but we're starting to scratch the surface where some of the use cases actually drive the purchases. (link)

Is it true that some of our clients use decentralized exchanges? I certainly hope so, because we're very much their fans. From one perspective, you could say that maybe we’re competing with decentralized exchanges, and on the surface, it might look like we are. The real answer, though, is that for each dollar of trade volume that moves off of Kraken to a decentralized exchange, we get two back—just based on the overall growth and adoption of the space from existing and new clients. (link)

For more from David, check out our full interview with him here.

On Thursday (6/23) at 10am PT/1pm ET, join us for an investor Q&A with Chris Belew, co-founder and co-CEO at CVEX.

CVEX is building a matching engine and platform to enable issuers, cap table businesses, and secondary brokers anywhere to spin up on-demand auctions for private company stock.

You can think of it as an interoperable version of the company acquired by Carta to serve as the underlying technology behind CartaX.

Accredited Sacra investors will have an opportunity to invest in CVEX's no-fee RUV vehicle for their Series A.

We're building an API that lets you integrate our reports, interviews, and company profiles into your app experience.

Reply to this email to learn more.

Check out these new interviews on the platform. Reply to this email to offer questions you’d like us to ask upcoming interviewees, request specific interviewees and offer feedback.