Licensing, Rails, and the Future of Finance: Arjun Sethi on How Kraken Is Rebuilding Banking

And in order to support that type of growth, which is not going to be a 10x, it's a million or a billion x in terms of the power of what an entity can do. And that needs permissionless innovation. It needs payments. It needs the ability to save, store, send, get yield. Then you're taking a look at all of these assets. There's more proliferation. There's more trading. There's more speculation. There's more saving. There's more access to capital and debt markets than we've seen before for everyone worldwide. And I think that's a mission worth fighting for.

No comment on that.

Actually, I don't even know if this is working, but yeah, no comments on it.

Yeah. So if you take a look at the company over the last 15 years, and especially in crypto, a lot of what you build is pretty much vertically integrated, right? Where you're an exchange, your infrastructure, you're creating digital accounts depending on the jurisdiction or where your customers are located. And so over the last 15 years, we built our own first-party application. So Kraken Pro, which is for professional traders, that's more like Interactive Brokers. Kraken Consumer, that's more akin to Robinhood and Coinbase in terms of retail and consumers that you serve. And then we built out the institutional house. All of those products were built on top of our own set of microservices and infrastructure. And so what we had decided to do over time is say, great, well we have a very specific mission which is how do we think about open rails, global, permissionless. And I think there's a lot of companies that say that but then don't do it. And we wanted to make sure that even the competitive landscape in terms of other fintech apps or vertically integrated applications that were building out either the brokerage model or wanted access to crypto or eventually now tokenized real world assets, that we could provide it. And providing that means access to liquidity, money movement, FX, etc. And so it seems like we're on a binge, but that's not the case. There's one set of infrastructure that really matters, which is just global licensing. And so the more in which we can add licenses to our stack, we can promote that for our first-party applications, our customers, but then also anyone else who wants to hook into our rails. And then what we can do is we can just continue to drive the price down for our partners where they don't have to build these rails in every single jurisdiction, which has been the problem for a lot of folks that are out there. The great thing about crypto and DeFi has been you're able to build permissionlessly as quickly as possible. The problem is that you run into something in each jurisdiction depending on what jurisdiction you're trying to serve the client. So Payward is the brand that we elevated in order to partner with other exchanges, other fintech apps, other banks, other larger institutions that might need those services. So we have forward deployment engineers now going into larger institutions so that we can essentially serve anyone who wants to enhance their products through crypto rails, as you might call it.

Well, to be clear, I think every regulator is relevant. It's just that who do they serve at that given time. So I mean over here in Bermuda, they're a large part of what we do to serve clients not just within this region but worldwide in terms of the types of products that we offer.

So for Bitnomial, it was just enhancing the stack in the United States. So today through acquisitions and just applying, we have, ironically, two FCMs, two DCMs, and one DCO, and it's for different reasons. Bitnomial had already spent their time thinking about what perpetuals were going to look like in the United States. And for some folks that don't know what that product is, it is different than what you would look at from a traditional futures contract, long-dated with an expiration, versus perpetually time duration. And so it's actually a really easy product for people to understand outside the United States. A lot of people use it.

I mean if you add derivatives and perpetuals, it's like 90% of all volume, which I think is important because it's an extremely important product that people care about, and it's a part of overall risk management that professional traders, at least that we serve in institutions, really care about. And then over time actually, I think it's just an easier product to understand than options for consumer retail. So we'll be rolling that out over a period of time in the United States. We already have that in Europe and other jurisdictions. But I think what was important is that this also leads the way not just to perpetuals for crypto assets, it's also traditional equities. And what about REAP? REAP for us, as I mentioned, we had elevated Payward in terms of infrastructure and services to as many partners as possible. So exchanges, fintech apps that are serving clients worldwide. When you think about what do you really want when you are serving any of these clients, especially consumers all over the world, it's what we're used to at least in the United States, which is onboarding and offboarding, treasury management, expense management. Now we're not getting into B2B expense management businesses, but we want to be able to enable that depending on who the customer is. And so REAP's primary customers, Asia, Latin America, and Africa, are all fintech applications, so they're enabling more digital applications through card issuance and treasury management. And so for us that was a pretty easy way to think about what the addition was going to be in terms of APIs and solutions for partners across the board, including again our competitors. And so we want to be able to continue to serve that.