Arjun Sethi, co-CEO of Kraken, on building the Nasdaq of crypto

This benefits our customers by reducing costs for sending, storing, and spending money across the board. Additionally, we can provide yield opportunities.

For example, if you're at a bank in different parts of the world where those yields aren't available, we're now able to build these types of products. Not all products will reside in the exchange, but the exchange helps facilitate many of these offerings. There is also a set of new, innovative offerings that I'm particularly excited about - the ability to create safe financial products for investors both within and outside the United States.

The United States has long been one of the most liquid markets in the world. The reason is that you have rule of law and a specific approach to liquidity, risk management, and facilitation between parties. Crypto enables us to implement this methodology all over the world. When we say we want crypto in everyone's hands, we recognize that use cases vary by region. Someone in Nigeria will have different needs than someone in Turkey, India, or Argentina.

For example, India has a huge derivatives market. We can facilitate that through our crypto rails. Turkey focuses more on speculation, Argentina is more a stable yield market, and Brazil prioritizes sending and receiving funds. There’s obviously overlap in how customers interact with products across markets, each region has distinct needs. How can you be on the frontline to enable these behaviors and drive innovation forward? Some of this we'll achieve through partnerships, where others can hook into our platform and we'll help them scale successfully, while other initiatives we'll pursue independently because we consider them strategically important.

Your analogy describes Kraken as Nasdaq to Coinbase’s NYSE, but is there also a difference in emphasis on retail vs. institutional needs? Kraken seems to emphasize providing the fiat on-ramps and off-ramps, along with the liquidity and technology that the financial system needs to bridge crypto and fiat currencies.

If today you have that comparison between Coinbase and NYSE and Kraken as NASDAQ, how did we get here? We had to build an exchange. We built both the technology and the exchange itself. We're looking forward to expanding and compounding this business, but there's so much more we can build on top of that.

We operate with a services architecture orientation, building various features on top of our exchange. For example, we've built the professional traders app, the consumer trade app, and a send-and-receive feature - all on our exchange. While the exchange serves as our foundation and partner, we continue to build additional services upon it.

Other companies in the ecosystem have chosen to build one monolithic experience. This isn't necessarily good or bad, but they've chosen to create a single experience for their customers. We want to provide the best experience for customers based on their location and needs. Whether it's banking and financial services in Mexico or remittances in another part of Latin America, we tailor our approach to specific use cases.

Everyone talks about stablecoins, but they require liquidity and the ability to move between fiat and crypto through on-ramps and off-ramps. These processes are not easy, and our exchange infrastructure, licensing, and user experiences enable customers to do these things. The challenge is making these elements work together seamlessly without confusing customers.

Today’s crypto and Web3 protocol wars are similar to the way people thought about telecommunications and email protocols, or debates about open source software. The average person walking down the street to grab coffee down the street doesn't care about the underlying rails - they just need it to work. Reducing friction in these transactions encourages greater adoption.

Regarding stablecoins, we've seen statistics showing that Kraken is powering 40% of stablecoin volume through on-ramps and off-ramps. Could you discuss Kraken's strategy going forward specifically for stablecoins? How do you plan to maintain your position at this crucial junction and continue growing with the stablecoin ecosystem?

If you take a look at the stablecoin ecosystem, Tether is currently the de facto winner worldwide. You have to ask the question, why? The reason for Tether's dominance is their extensive global partnerships. Whether you're creating an application for sending and receiving, managing liquidity, or generating stability and yield, you use them. They've established themselves as the go-to solution for quick integration.

The stablecoin ecosystem is driven by the volume of transactions, though the liquidity requirements vary by use case. For B2B businesses, they just need sufficient liquidity to move money for basic transactions, while high-volume transactions require much more substantial liquidity. You have to have an ecosystem with enough liquidity to be able to support a ton of applications, with exchanges playing a part in supplying liquidity both on-chain and off-chain. The key consideration is understanding what types of applications that you can build because of that.

You’re co-founder and investor (via Tribe Capital) in Kapital, a neobank for SMBs in Latin America. It has several products that help its customers leverage stablecoins. Are stablecoins permeating into Main Street businesses globally? Is stablecoin volume proliferating more extensively than we might expect?

Let me answer your question in reverse order. Is it proliferating? Absolutely. Stablecoins are spreading rapidly across Africa, Latin America, and Southeast Asia. The reason for this proliferation is simple: everyone wants access to something stable for their business operations, sending money, or savings. That stable currency is the US dollar, and its digital equivalent is a USD stablecoin. There are multiple players in this space - USDC, USDT, and several others.

Kapital operates in Mexico, Peru, and Colombia. In Colombia specifically, stablecoin adoption is quite high, around 60-70% or more. That's how people want to save their money. If you're a business owner who gets paid in USDT, you're going to store it in USDT, seek yield in USDT, and send and receive payments in USDT. While other stablecoins can be used for transactions, the demand centers on USDT because people view it as synonymous with the US dollar.

In Mexico, Kapital is a regulated bank - we don't hold, trade, or include crypto in our lending ratios. However, for our Colombian customers who hold crypto, we work with them to ensure seamless fiat on-ramps and off-ramps. A key point is that holding crypto isn't enough; you need to be able to use it. This means offering banking services, payroll capabilities, and other essential functions.

People often overlook that sending and receiving money is fundamental to daily life. Whether it's splitting dinner with a friend or conducting business transactions with credit lines and inventory, these transactions are typically denominated in US dollars as the reserve currency. This activity will transition to stablecoins, with USD remaining the de facto reference currency.

For example, when a Colombian strawberry or flower farmer working with Kapital exports to the United States, stablecoins provide the most efficient transaction pathway. The benefits are clear: transactions are instantaneous and trackable, require a facilitating partner, and involve zero costs. While wire transfers might be affordable in the US, international transfers often require multiple intermediary steps in other countries. Traditional services like Western Union have transaction limits, but crypto exchanges can handle large-value transfers for inventory.

This isn't limited to Latin America. In Asia, the frequency and volume are even higher, particularly for moving money between financial hubs like Singapore and the UK. Some customers transfer hundreds of millions of dollars monthly, and they can't do this cost-effectively through traditional channels with multiple middlemen. This is where we'll see the most disruption and revolution, and we want to help facilitate and empower that transformation.

What kind of productization does that entail? Specifically, how do you bring that to life in terms of helping with those use cases?

You have to approach your exchange as a platform. While exchanges are initially built as platforms for traders, you need to expand their functionality to serve merchants, enterprise businesses, and banks. This has been an area we've been focusing on extensively.

I wanted to touch on meme coins as well and get your perspective. Kraken has a reputation for solidity, seriousness, stability, and being tech-forward. Meme coins are relatively new and have a different reputation. Why do you think it's important to serve that use case, and how do you balance it against Kraken's brand positioning?

The future of the meme coins market is uncertain, but it's going through a process of testing and iteration. Currently, they rely on hype and brand. Proponents argue that stronger integration into real-world applications could secure their place in finance, though the meaning of this remains unclear.

Consider why certain items in games like Diablo become valuable - they derive value because someone else values them, not from intrinsic worth. Meme coins represent incentivized freedom of expression that changes the financial social game. As evidenced in Solana's approach, you're essentially speculating on culture, voting up and down on cultural elements. This is particularly powerful in the United States, where freedom of expression is highly valued.

Memes are ideas present throughout the ecosystem, whether egregious or legitimate, expressing the views of individuals or groups. People communicate through them, store value, send and receive assets, and build communities. If people create meme coins analogous to how we played Dungeons & Dragons, they're building communities. The question becomes what we can build on top of that - perhaps social networks and structures, new stores of value, or ways to enact specific social change in regions or countries as forms of expression.

While we don't know the outcome, high adoption indicates something significant that deserves attention. When people point to NFTs as having flamed out, they misunderstand that NFT is a technology with broad applications. You can wrap real-world assets around it - I've worked with companies that wrap trusts around NFTs, creating tradable assets that enable quick ownership transfers.

People often get scared because of the initial noise, but the key is identifying the signal and empowering it. Being in the early days is advantageous - we can learn quickly, see where this leads, and watch what becomes mainstream and culturally significant for each region.

How do you approach managing these quick-moving decisions about what to list or not list, and what to engage with or not engage with?

There is something really important about letting people express innovation. This consists of two parts. First, how do you create an environment for open exchange where the speed of development is unrestricted? It needs to be less about rules and acting as gatekeepers - more of a free-flowing space. We need to help enable this innovation rather than restrict it.

This connects to a concept we've been discussing in politics: those who have power tend to use it to perpetuate their worldview. We see this differently demonstrated in DeFi, where they showcase their priorities in a fast, transparent way. When something isn't working, they adjust quickly. This rapid adaptability is special and worth preserving.

We can view exchanges in two categories: open exchanges and trusted exchanges. Currently, we operate more as a trusted exchange, that’s how people view us. But in any exchange - trusted or not - you can make money, lose money, or maintain your position. Whether you invest in listed stocks or penny stocks, losses are possible depending on your risk profile and appetite. People will always make their own choices, and our role is to create a safe space for them to do that.

The future may involve a bifurcation into two models. Trusted exchanges, which make decisions based on trading volume and sufficient disclosures around projects - this is where regulators can help define future parameters, and I’m really looking forward to that. In parallel, open exchanges should remain unrestricted, similar to the internet. There needs to be that sandbox for experimentation. Technology itself should remain open, but when you build technology for specific use cases, that's when appropriate rules become necessary.

To the extent you're able to share, what are some things that have been working at Kraken that you'd like to see people double down on, and what kind of KPIs can help guide that process?

My background comes from working at numerous startup companies in the social gaming and social networking space, including Facebook. With my team at Tribe Capital, we built a company called Termina and developed a framework called growth accounting for high-velocity startups.

This framework measures the efficacy of product-market fit across distribution, engagement, and monetization, then integrates these elements. This analysis requires raw transactional data, which is readily available in startup companies, software-led companies, or machine learning AI companies through API integrations, customer connections, and software workflow usage.

While most companies focus solely on financial and operating metrics, we examine all engagement metrics. The fundamental question is whether customers are using your product at all, before even considering monetization. This is quantifiable and can be benchmarked.

My perspective is shaped by the data from companies I've invested in and we’ve built from scratch, especially in fintech. We've identified what works and what remains uncertain, which helps determine where to invest R&D money - what we call "loonshots" - to innovate new products while maintaining essential features for customer experience and proper attach rates.

You also have to put the art on top of the science. Rather than starting with a vision for look-and-feel and then finding customers, it’s the other way around - start with the baseline foundational features customers need, then create the best experience around that. That makes a big difference.

This applies to everything: onboarding, helping customers save, send, receive, store, speculate, trade, manage wealth, make payments, secure loans, or participate in investment opportunities like an Apollo Global Fund on-chain with 11% yield. There’s so many things people could have access to, the key is effectively bridging knowledge gaps for customers.

This approach comes from my experience building various games between 2002-2009 - social gaming, mobile gaming, hardcore games, casual games - each with different distribution and revenue models. We focus on what we call the "whimsical" aspects of product development. This model has helped us scale companies to multibillion-dollar valuations.

For example, we were part of the early team that helped Slack develop their approach. Many of Slack's game-like mechanics became industry standards, now widely copied by other chat tools. Before Slack, there was HipChat, and before that, earlier versions of similar tools. There are baseline features that continuously improve through iteration.

The Kraken business model has primarily been built around transaction fees. As you develop more financial infrastructure and serve different kinds of use cases, will the revenue mix evolve? Is the core DNA of the business model going to shift?

While we view ourselves as a platform with deep, high-quality exchange liquidity and various capabilities, maintaining focus is crucial. Our priority is catering to our core customer base with all our products and financial services while continuing to expand beyond that foundation.

We're partnering with numerous companies in areas experiencing innovation, particularly in DeFi and traditional finance-style banking and financial services. These partnerships help create safe entry points into these spaces. Rather than immediately doubling or tripling down on new initiatives, we'll continue to pursue strategic partnerships.

This connects back to the question of quantifying product-market fit. We need to evaluate what's working and assess the customer experience, even for API-driven products. As we build out our products and services, everything must serve our customers' needs. Our primary focus will remain on supporting our customers' complete workflow requirements.

Could you walk us through the areas where you compete with Coinbase and Binance, and where you believe your positioning is distinct from them? How should people understand the different market segments where you are and are not competing?

We're all competing against each other - that's a fair statement. The way I think about Coinbase and us is NYSE and Nasdaq. They certainly are larger from a pure volume standpoint. We are more advanced from a technology standpoint. Take a look at meaningful metrics. Our tech platform uptime is 99.9%, round trip latency is sub 2ms. Our average revenue per customer is now well over $2,000 – far surpassing any comparable stat we’ve seen from traditional or crypto exchanges, including Coinbase.

With Binance, you have an offshore exchange that takes a monolithic approach where all experiences must exist solely on Binance. Everyone's taking a different approach.

One area we've focused on and will continue to prioritize is professional traders, similar to what Interactive Brokers has done - understanding their workflow, trading preferences, and how institutions work with us, along with developing products and services specifically for them.

People often discuss retail and institutional trading but overlook the middle category: professional traders. These are individuals who trade professionally, whether it's one person in a garage, a family office, or a team starting from scratch with their own capital.

This segment represents arguably the healthiest part of any economy because it prevents a bifurcation between retail and institutional trading. Just as we consider small, medium, and mid-market enterprise businesses, the goal is enabling maximum creativity within these small to medium categories of professional traders.

Since DeFi is still an area where many people outside the tech and crypto world find confusing, could you explain what this product will bring to the Kraken family and Kraken users?

Today Ink is an L2 blockchain built on Optimism’s Superchain, if you're familiar with it. The stated mission of the chain is to serve as a bridge into DeFi. This mission stems from everything I mentioned earlier - when customers want to generate yield, make payments, or speculate and trade, they engage with both our trusted exchange and DeFi components.

While DeFi is currently open and experiencing significant innovation, we want to serve as that bridge. This is where Ink really comes in - to empower other application providers to use our bridges across Ink, and to allow us to build our own vertically integrated apps on-chain. This makes the experience straightforward and accessible for users, not complex or daunting.

DeFi apps today are really complicated, requiring Chrome extensions and seed phrases. The common saying "not your keys, not your crypto" means you have to store it on some sort of physical device, which is very hard for the average individual. There's a direct parallel between this and the safety of holding cash under your bedsheets.

Our goal is to bridge the gap between complexity and accessibility. While many people want access to these financial products, they may not be technically sophisticated or understand all the intricacies of DeFi. We come in by providing access to a trusted set of products. That's the mission of Ink Layer Two.

Polymarket and Kalshi have made some noise, especially after this election year. Since Polymarket is part of the crypto ecosystem, do you have plans to enter that space? How would you approach that kind of expansion?

What’s funny I think meme coins are an expression of prediction markets - probably the strongest enumeration of that concept.

There are many areas where people are innovating. Polymarket, for example, is really cool because it's building a social network where people express themselves through taking actions with money. That's awesome. We want to help enable this globally - some initiatives we'll empower, some we'll participate in, and others we'll invest in. We want to see more of this because frictionless access to these markets serves customers' best interests worldwide.

There are so many markets here, and our goal isn't to dominate all of them. It’s not like we’re going to create video games so we can power payments, it’s more about empowering video game companies through crypto - that's our deep passion and background.

Similarly, when we think about freelance creators and digital nomads who need to operate globally, the question is how do we enable them to navigate every jurisdiction with bank account-style products, yield products, and transaction solutions? That's a hard problem, so this goes on around what the use cases are.

Prediction markets represent another avenue to facilitate crypto adoption in the future. They're building a network, and importantly, the lesson here is that the worlds of finance and culture are rapidly colliding.

You have this programmable money system meeting programmable social culture, which creates exciting building opportunities. However, compliance becomes crucial because you're handling people's capital, allowing them to speculate and vote with it.

Regulatory clarity and compliance become really key - you need to consider what forms of expression you're enabling while ensuring it serves users' best interests and aligns with traditional post-World War II financial infrastructure.

That's where we fit in as a bridge. We're all working to figure out how to adhere to regulations while maintaining an open space for ideas and exchange that remains permissionless.

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