Arjun Sethi (Co-CEO, Kraken) on Bitcoin DeFi, $DOG, Runes and More

I'm doing well. Thanks for having me.

I'm wearing some of the gear and the goods that some of the folks in the dog community sent over to me. So, that's what I'm wearing. I have a t-shirt here. My kids have all the fluffy dogs. I got the Runestone, the hats, like everything.

Yeah. You know, there's probably so many ways in which I could explain this, but if I was to take a step back, I think if you're building, investing, or partnering, at least for me personally, I've been more drawn to what I call outlier signals that most people kind of ignore. And so most people focus on signals that are just only people, but I like to think about usage, gross demand, just like data in terms of how people are using or doing things. So there was this line at least in the venture capital community that's pretty famous from one of the Benchmark investors named Matt Kohler and he said that his only job in the world is to see things as clearly as possible and from there he can think about making a decision or an interpretation from that. Actually that resonated with me for a while but I didn't know how to clearly think about articulating that. So at Tribe over time the ethos was grounded in finding power laws and what I mean by that is how do you think about building systems or technologies that don't look like much at first but they compound relentlessly but how do you identify that really early leading to lagging indicators and then through that same lens how do you look for early signs of durability, exponential behavior, and I think more so that is enumerated like so quickly and at such a fast pace in crypto and in AI, but crypto you could just see that from a community perspective, open source perspective, new things that are being built. And so if I take a framework like many of the most important innovations like today that you see in Bitcoin or DeFi or on-chain memecoins that are like misunderstood or dismissed just like mobile was like really early in 2008 the first versions everyone kind of made fun of it. Or AI in the early versions in 2015, machine learning to AI. And so when I think about how I spend my time, my job is now to take as many of those early signals as possible, whether that be an early team, a company that we meet early, a community that I start engaging with, regardless of what that looks like, I think of it as what are those early signals that I can bring to scale in some cases responsibly, securely, and in a way that everyday people can access. And so that's why I built Tribe and then it was very naturally cascaded into crypto and some of the work that I do at Kraken.

So, Kraken's — I would urge everyone to go to the Kraken website and, you know, take a look at the Kraken culture doc. And we talk through what Bitcoin means, not memes, and how do you think about proliferating that type of technology of crypto and the original thesis of the Bitcoin white paper and so on and so forth. And so if you take a look at Kraken's DNA and culture and how it's evolved, it's very aligned with Tribe's original mission and investment philosophy. So how do you be early? How do you be right? And how do you stay really principled? Not just disciplined, but principled. And so you're not trying to be everything for everyone. I think that's really key because a lot of people try to build the everything store but then you become the nothing store in some cases. So if you really want to be the trusted backbone for the next era of financial infrastructure it means you got to build safety. It means you got to build trust. It means we got to make sure that the products that we build prioritize what I would call customer sovereignty. You need to make sure that you have some regulatory durability. And you need to make sure that you have deep technical rigor. I think those three things are really important. So when I say user sovereignty, what does that mean? It's that the permissionless aspect and the freedom of what you get in crypto, we have to stay true to and fight for it in some cases. Regulatory durability makes it so that we have the ability to fight for it and to be able to deliver those products. And to be able to do all of the sovereignty and the durability, we have to be technical. But we have to be able to build good products and we have to be able to make sure that we can architect it for closed source, open source, whatever it may be. But if we're going to be able to promote a community as much as we're launching the Krak app for on-chain first users or integrating Runes or supporting tokenized real-world assets through Ink or launching Xstocks, our goal is to serve what I would call the real economy of crypto and what the future real economy of crypto is going to be and not just the speculative one. So when I go back to that sentence, how do you see the present really clearly and what are the criteria you use for decision-making ends up being priority number one in merging those two ethoses together of what the Kraken DNA is and then what I've been doing at Tribe for almost the better half of most of my life of creating this infrastructure. So I think innovation only really matters if it endures and that's where it leads and hopefully I can continue to do that at Tribe. I learn a lot there and hopefully at Kraken we can do the same thing there where I'm able to take a lot of those shared learnings, shared teams, shared infrastructure, shared products and then continue to build on top of that.

Yeah. So I mean first off I appreciate the sentiment but I'm definitely not a voice of the people. I would recategorize it as I love to jump into things where you can stay close to the field. So let's draw a parallel. One of the parallels I think about at Tribe all the time is when you're talking to a founder and they're looking to get an investment, there's a power dynamic. You have capital, they don't. So they're vulnerable and they're putting everything on the line to be able to have that conversation. Two, when you think about traditional finance, you don't have access to capital, lending, mortgages, financial structure products, etc. And the average everyday individual citizen, however you want to define them like you and me in some cases don't have access. So we always feel vulnerable depending on what we're trying to do. And so the traditional financial system is in my opinion it's stacked against an everyday individual because it will always take from one aspect and serve the needs for another constituent and then have to extract from another constituent to serve the needs of another. And I don't really like that because if you look at traditional infrastructure, traditional web companies, traditional technology companies, that's actually what happens. You extract from a larger cohort. It's kind of like insurance and then you provide to people of capability and means. And so I think what the ethos for me at Tribe has been and what has taught me for a long time is how do I continue to look for underpriced traction, which is like how do you invest behind that? That's your time, that's your capital, and that's your attention. And everyone forgets that all those three things matter. So let's talk about Bitcoin DeFi for just a moment. So it's an underpriced fraction. That's kind of how I define it today. And it has all the markers of that. Ordinals, Runes, DLCs. They're weird. Early, full of a ton of energy. But they're also forming what I call real ecosystems. Community is a real ecosystem and everyone kind of forgets about that. We talked about it from way back in the day from bulletin board services, open source communities. Over time those have evolved, Reddit, etc. But I think what's truly interesting, and it took me a while to get there, it didn't happen for me immediately either, is that a lot of these communities are always forming real ecosystems. So, Bitcoin has always been crypto's center of gravity. I don't know, for some reason, sometimes we forget about that. But it's been stuck in some kind of what I would consider monetary minimalism and that should and I think in some cases is changing pretty fast. So like Ethereum you can define as unlocked programmability. Bitcoin now is unlocking portability, maybe permanence, performance in some cases. And so I think that's really important, the three Ps — portability, performance, and permanence. So what does that mean for the ecosystem? So when I think about Kraken, we see this as the start of a multi-cycle buildout, is that we want to be a place that supports that energy and supports that really early and we want to be the platform that brings the Bitcoin native innovation to users at global scale. Especially if it works, why not?

I think that anything early that has some sort of traction, no matter what the monetary mechanism of it is, is cool, right? Like just you just start there. And so any early signals of traction is attractive, especially if it has a growth velocity. I think maybe — I have two kids, right? And so when I think about what the growth of the experience was for when my kids were born, it was different when they were at conception to their birth to their first 6 to 12 months of their life. It's just different experiences. What's cool about early stage movements or early stage capital or early stage companies is you get to see that again and again. So it's highly addictive actually and then you see these patterns that you get to recognize and we built a lot of quantitative methodologies to identify it but you still want to be a part of it. It's not something that you just look at as a transaction. I think a lot of public and private markets guys will be like we love Amazon we love Netflix but then maybe they've never used the product in the way that it should be used. And so for me I looked at dog as an early signal for me at least and maybe a pivotal moment. Who knows? And so it wasn't — I think to be honest I think it was just like a whim. I just saw something that was cool. Some people were sending it to me and I was like maybe I should pay more attention to this. I am in crypto at the end of the day so I wonder what they're doing. And so I just got excited about it. The same way I play like a video game, my avatar is one of the members of the Protos, etc. And then you get deep into it and you sort of get into a rabbit hole. And so bringing this back to Tribe, and I get in the rabbit hole of a lot of the companies that I support, was that we just always pay close attention to early behavior. So you've seen the early behavior we just talked about it and it doesn't make sense to others. You might get ridiculed by it, people might make fun of you about it. People still make fun of me about dog even today. They're like I don't understand what's in your Twitter profile or what are you tweeting. And it doesn't matter to me. It's just like I'm in this zone right now where it matters to enough of a community and that's great and I'm having fun with them and I'm spending time with them and hopefully I can innovate with them over a period of time and I want to do that not just once or twice but four, five, six, seven times. And so I think dog was that for me. So it wasn't just a meme. I don't hold any outside of like a couple thousand bucks just to support the community. It's not like I'm trying to make money up or down on it. I'm not a trader. I don't have any volatility and so I've tried to be as open about that as possible. So I think it's cool that there's been a cultural accelerant from it from us but so many other people that I've seen other exchanges starting to do the same thing on top of Bitcoin which for years has been viewed as too static to evolve. And so by putting dog in my profile or my description or in LinkedIn, I think it was kind of in homage to something that's just completely new and that's not part of a different accelerant. So if it helped, that's cool. I didn't think it would. But if it's a spotlight that's meaningful to at least one person that's happening in Bitcoin, then I'd say great, we should continue to look again and maybe this time it's different in terms of what's going to happen in the future.

You know what's been great about our experience here was that it kind of reminded us of what our experience was when — and not just me but it brought nostalgic memories from what Kraken was really early. So let's just talk about dog for a second. It represents the future of a culture and a protocol. When I think about what we've done at Tribe, we've always emphasized evaluating the stickiness of a product or an asset. So for Kraken, I think supporting dog was about not just listing another token. It was more about endorsing a new wave of Bitcoin native user engagement, which I think — just think about that. Bitcoin native user engagement versus what we've seen in the alternative asset ecosystem or a new chain. And so I think bringing more light to assets like dog also just brings new energy to the ecosystem. It brings new energy to our team and also brings new energy to teams all over the world that are on different chains that might be in Asia or in Europe that just thought that we wouldn't ever want to pay attention to them and now we're bombarded by them. Even for some folks that are Bitcoin native specific, right? So I think it's cool while we're also able to then stress test our native underlying infrastructure to be able to support this. So it's fun but then it's also serious and then we get very hardcore about what else do we need to do in order to make our products and services better. What do we need to do to be able to reach out to early communities and ecosystems to be able to help support them as early in their journey as possible which is something I think over a period of time we forgot because we've started thinking about it as a transaction rather than a movement from point A to point B to point C to point D. And I actually think traditional ecosystems and exchanges, we probably actually have a lot to learn from them right when you think about NYSE or NASDAQ. When I'm in a Series A, B, or C company they're actually reaching out and saying, what can we do to help support you? Because maybe along that journey, you get to a place where it makes sense to list with us. But there are years of that journey that you need to be able to hire people, think about the next stage, partner with folks, raise capital, etc. So I think if Bitcoin is to remain more relevant outside of what we see as a transactional model and can be even more relevant to the next generation beyond what we've been doing over the last 10 to 20 years, I do think it's really important to enumerate ways in which it needs to evolve without compromising its core and you guys have done more for this than anyone else. So if dog or the next set of Bitcoin native user engagement is the future, then we should be there to help support it along the way.