Kraken Co-CEO Arjun Sethi on the New Crypto Environment | SALT London

Thanks for being here. Let's start with a macro industry overview. We've obviously had big changes in the digital assets fintech industry since President Trump took office. I think we were all banging our heads against the wall hoping for progress in terms of how Washington regulated digital assets and fintech, and we've had rapid progress in the almost year since President Trump took office. Regulatory clarity in Washington has accelerated the growth of the industry and reshaped digital finance.

I think if you take a step back, we talk about the internet and the internet works on an open set of protocols and a standard set of protocols that everyone sort of adheres by either by regulation or industry. Crypto is kind of the same thing in that you don't want fragmentation. The more fragmentation from a regulatory perspective, the more I'd say is fragmentation of liquidity in some cases in some markets where some people may or may not have access to whatever financial products of the future we may be betting on or we want to innovate on top of. So if there's no clarity there, it's similar to how you think about trade, right? The more clarity there is around trade and talking about tariffs and stuff, the more sort of businesses can start thinking about how to build at a foundational layer and then like applications on top of it. The way I think about crypto is that you've got this base layer liquidity, programmability between chains and on top of that you've got a certain set of products that get fragmented across different jurisdictions. I would say then you start getting into a place where you have the haves and the have nots. If we're betting on DeFi, which is what we are, then that just means that those type of innovative products are not going to be accessible to a certain set of folks. I'd actually argue that for at least developing economies versus the developed economies around how people define it, the developed economies are at risk of losing what the innovation economy could look like over the next 25 years because of depressed innovation.

Yeah, I think it's a little bit of a maybe a branding issue which is like we started with tokenization or I'll take a step back. So like we, I went to 10 Downing Street yesterday and it was the same conversation which is like hey like everyone thinks of this as still nefarious activities and you know there's like a systemic risk issue etc. And I kind of took a step back and I said hey you know like if you just take a look at any asset class it's pretty speculative and depending on what markets you're referring to it's also highly concentrated. We talk about power law but there's also concentration law right if you take a look at the repo markets highly concentrated less and less participants. Then you look at every other liquid market, it actually ends up being the same. And so I'd actually argue like that is your systemic risk concentration and fragmented liquidity across multiple products. And when you have that and you don't have a layer of liquidity between each of these participants, then what ends up happening is that you just have shocks within the system and then because then the markets are actually artificially just small. And you've got like a global liquidity layer, which is what crypto is ideally the promise to be, is that you have a set of asset classes that are actually programmable and interoperable with each other and so liquidity just becomes easier for anyone who's a risk manager. Now this might not be a problem for certain folks that have access to like the JPMs of the world, but that's like one out of a thousand or one out of a million in some cases. So when you've got worldwide global liquidity participation, then you're able to have more and more folks. And so like why is stablecoin important, right? Why is like the US pushing it so hard? Is that you know all the folks that were treasury participants or buyers, you're just literally bottoms up saying, okay, well USDT and USDC maybe in three years is going to be equivalent to China and Japan. That's a big deal, right? Because you've got a lot more bottoms up participation in these financial products and you're not reliant on one concentration customer and that is the exact same thing for every asset class. So when you think about speculation there isn't an asset class where there isn't speculation and you do need speculators to have liquidity but then you get the rest of the financial products and liquidity because of that.

So there's multiple questions and look the flash crash was essentially taking leverage out of the system for a bit and then it obviously builds up over time. So I'd say on average you saw basically between 30 to 50% of leverage just started to get depleted and then the market sort of started recovering from there. But what's funny is that we talk about that but you know there was a price delta of $5,000 and now we're down to like a hundred. So it's not about necessarily a glitch in the system. It's just more that there's volatility in some cases. That's great because there's a lot of inflow of capital and outflow of capital which is also just a sign of maturity and also like every time this happens there's always the one person that says hey like Bitcoin is dead and we're still around. So it's maybe the fifth, tenth, fifteenth or twentieth time before something changes. But I think it's not an if or when statement. These things are being reprogrammed across the board and again I go back to the basics which is in any of the developing economies they are leapfrogging right stable coin rails are being built there cross-border payments are being built there now people are taking payments even at the merchant shops if you go to anywhere in Latin America now frankly anywhere in Africa the merchants are you see bitcoin and you see tether like that is the brand sort of people are starting to trust and so when all of these things are starting to converge and merge. People are literally building out decentralized financial products. They're building out other DeFi accessibility products where people just want access to capital, access to using collateral for forward mobility. And so as I mentioned before, any of the developed economies, how they think about this, they'll think like, why do I need this? I have my infrastructure. Well, when you can start getting access to Fed fund rates minus one, you start really thinking about well, why is my access to capital now more expensive than the rest of the world?