CEOInterviews.AIDave Ripley: Are the SEC Overreaching with its Approach to Crypto? Should Gensler Step Down?

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Narrator0:00

Do you feel targeted by the SEC? I think the approach is completely flawed. Dave Ripley is the CEO of Kraken, one of the OG crypto exchanges. He explains the biggest problem with crypto regulators in the US and addresses some of the most common crypto misconceptions.

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David Ripley0:15

The right approach is what we see everywhere — what we see in Canada, in Europe, where their Parliament or legislatures work to put in place proper laws, the companies come in and actually have a path to register and license and provide services.

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Harry0:27

What do you think are the top myths that are wrong?

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David Ripley0:31

Well, there's many. Probably the one that, over time, I've learned to be brutally honest about.

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Harry0:39

Dave, I am so excited for this. First off, I want to say a huge thank you for joining me today.

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David Ripley0:47

Yeah, absolutely great to be here with you, Harry.

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Harry0:49

Now I want to break the context part into two different parts. One is, what was your first engagement with crypto, and how did you first make your way into the world of crypto?

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David Ripley0:56

So about ten years for me, just over actually. At the time I learned about crypto, I was at Boston Consulting Group, a large strategy consulting firm, and I was interested to get back to the tech industry. Also kind of had in the back of my mind potentially founding a company. An individual I learned about Bitcoin from happened to end up being my co-founder. That's actually how I initially learned about it, and then like many others, went down that rabbit hole. I learned first about the tech, and then all of a sudden, wow, that's super interesting — then the economic side, the societal side, the government piece, all these different aspects of crypto. I spent frankly months going down the rabbit hole, learning about crypto in every which way. Also going through the process a lot of us do of learning about crypto and saying, 'Hey, this can't work because X,' then going to research it, read more about it, and getting to the point where actually maybe this would work for XYZ reasons. So super excited about it. It definitely aligns with my view on economic freedom and these pieces, and so just got incredibly excited about it.

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Harry2:13

Okay, so we dive down the rabbit hole. How does Kraken come to be, then, and what does that entry point look like?

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David Ripley2:19

Right, in 2013, I founded a company, Glidera, and that was a crypto company. We basically provided some tools, APIs, to let all of the Bitcoin wallets at the time add Bitcoin buying and selling into their apps. Kraken was one of our partners — we used them on the back end for liquidity, because they had a nice big proper exchange that provided such things. So I knew some of the Kraken team, including Jesse, from that angle. It was 2016, we started discussing what's next for Glidera, what's our next step — another fundraise? We had already done one, a year plus prior to that. And we talked about the potential for acquisition, and so Kraken acquired my company, which was small at the time — Glidera — and I joined Kraken following that acquisition.

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Harry3:15

Got you. Okay, so we join Kraken following that acquisition. Can I ask — you were COO then, I think, for six and a half years or whatever it was, according to the trusty LinkedIn, and then take over the reins as CEO. How was that transition, and what are your biggest lessons and pieces of advice on moving into the role of CEO?

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David Ripley3:33

We talked about CEO transition for quite some time — not even just months, but on the order of a year plus. That happened last spring, so it's really been probably just over a half year. So we're kind of in the early period, if you will, of me taking over. Each CEO brings their own culture, especially a founder CEO, and so there are challenges. One is we did the transition, and there wasn't actually someone to come in and fill my old role as COO day one, so that made for an interesting start. We were well down the process of finding someone to fulfill my role, because we had announced the CEO transition many months before and were in the recruiting process. We were feeling relatively good about it, but we actually hadn't finalized it yet. That was probably one of the bigger challenges — trying to identify the right kind of interim step for us to take while I was going to become CEO and still have this role open. A handful of great leaders at the company stepped up and really took on more, and frankly really allowed us to be successful through that period.

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Harry5:13

Okay, that's one. Semi-one. If that was your sole challenge in six months, Dave, you've been in immensely calm waters.

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David Ripley5:26

Yeah, so I would say the other dynamic that has existed, frankly, throughout this year, and that I stepped into, is we had SBF and FTX and all the other failures of 2022 in the crypto space — most of them, frankly, tragic, and fraud associated with, at minimum, FTX and so forth. Really horrendous. Coming into 2023, we see a lot of activity on the regulatory side in a lot of our geographies — Europe, UK, Canada — they were already in progress of putting in place new regulatory frameworks. That led to a number of different things we had to do from a buildout standpoint. But then you move to the US, and they were not in the same place, and so you kind of had this regulation-by-enforcement approach, largely referring to the SEC, that has been certainly a challenging dynamic throughout all of 2023 for Kraken specifically, but also a number of our peers. That's definitely, from a market environment challenge, really high on the list.

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Harry6:57

Okay, so I'm going to ask some questions just because my knowledge is rather basic — I am a venture capitalist by trade, Dave, so there would be a good reason for that. Do you feel targeted by the SEC? Because you and Coinbase have been very good actors, and it feels like a bit of a targeting.

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David Ripley7:16

It's clear that they do appear to be focusing on companies that are US-based companies, at least in the case of the SEC.

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Harry7:27

Do you feel like they're overreaching? The right approach, but just not in the right place on the spectrum?

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David Ripley7:34

I think it's more fundamental than that, in that their entire approach is off. It's just completely off. And so the right approach is what we see everywhere — what we see in Canada, in Europe, in the UK, where Parliament or legislatures work to put in place proper laws, the regulators work to implement those laws, the companies come in and actually have a path to register and license and provide services. That's the right approach, and that's none of what we've seen from the SEC. They've been fairly resistant to that type of approach.

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Harry8:12

Why are they resistant to that approach, when it is very common in other jurisdictions?

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David Ripley8:19

I think, for the most part, we're mostly left wondering why this is the case.

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Harry8:27

If they are successful in their attempts, what does that mean for Coinbase and for Kraken?

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David Ripley8:31

It means limiting your activities. But it's really tough to answer that question because they won't be successful. They've lost in XRP, they've lost the Grayscale thing, they just kind of continue to not see success with these actions. So I don't think they will be successful. It's tough to imagine exactly what it looks like for a success on their side. In the claim against Coinbase, claim against Kraken, they've identified a handful of tokens in each. We list more than that handful they've identified. It's tough to see exactly the end game that they're headed down.

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Harry9:31

For what it's worth, I spoke to mutual friends of ours. They asked me to ask: should Gensler step down? As many suggest that he should, given the lack of success he's had, at least within the cryptocurrency sphere. We don't see any positive steps, any clarity and guidance, any positive steps for investor protection or any of the goals that the SEC — I think their mission — and so that's unfortunate.

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David Ripley10:09

Just to clarify, when we look forward to the next three to six to nine months, we expect the SEC to continue losing on multiple different fronts?

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Harry10:16

Yeah, I mean, I'm not too sure how many cases they have out there right now. We've called out kind of the two that are top of mind — the Kraken complaint and the Coinbase one — but yeah, I mean, we're quite optimistic about the path forward for those.

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David Ripley10:34

But I do just have to ask you — as we look towards the presidential election, how important is the presidential election for crypto in the US? I'm obviously outside the US, so educate me — what impact does that have?

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Harry10:48

I mean, look, the longer-term arc — we have a number of these candidates. I mean, almost all of the candidates that are out there are pro-crypto, pro-Bitcoin. A lot of the interesting ones — you have RFK Jr., of course, he's independent now, started out Democrat, now independent. And then you go to the other side, Governor DeSantis. The majority of the candidates out there are pro-Bitcoin, pro-cryptocurrency. Of course, we don't frankly see any comments from our current president on Bitcoin — we see it from his team, if you will. Look, the long arc — I can't tell you who's going to win this election, but I will say that over the coming set of elections, we will have a pro-Bitcoin, pro-cryptocurrency president, because crypto and Bitcoin are naturally going to grow, they add amazing value for individuals, and they're going to continue to grow over time.

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David Ripley11:56

I've learned to be brutally honest. In shows, Coinbase for me seems like the consumer brand where you go to — we have pubs in the UK, but you go to the pub, people know Coinbase. It's on Super Bowl ads, it's on buses. And Kraken's like the one where if you know crypto, you know Kraken. Do you see what I mean? Are you happy with that branding? Is the stadium deals necessary? I'm just fascinated to hear your thoughts on that.

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Harry12:27

Yeah, well, I think there's a couple different things just on the evolution of Kraken's products. One of the things we've done even more recently is actually start marketing. We almost made it to become an enormous multi-billion-dollar company without frankly doing much marketing at all, which is kind of amazing in itself. But over the past year, and really almost over the past six to nine months, we've actually started to become a more meaningful player with marketing, and that has been one of the catalysts to drive more growth in those newer products for ourselves on the consumer, individual retail side.

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David Ripley13:04

Do you worry about the commoditization of marketplaces? If the majority of trades are in certain markets — Bitcoin, Ethereum, Solana — I presume a lion's share. Everyone sells trust, everyone sells peace of mind. Do you find it difficult, the commoditization, differentiation?

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Harry13:26

I think it's going the opposite direction. It's extraordinarily difficult to get all the foundations right — security, regulation, compliance, all these different pieces. So much so that we've seen a lot of companies not just go by the wayside, but completely disappear. We've almost seen the opposite — where a lot of companies come in, try, and are not successful.

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David Ripley13:47

Speaking of, kind of the opposite of what you think — a lot of people have commonly held beliefs about crypto that they're quite strong on. What do you think are some of the top myths that you so often see that are wrong?

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Harry14:01

It has no value. When someone makes that statement, there's like, okay, so this person hasn't done too much reading on history, which is not that difficult to do. You not argue — and I sound like Jordan Peterson — which is like, well, how do you define value? Like, a piece of paper doesn't have value — it's a promise, it's a—

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David Ripley14:24

Exactly. I mean, all currency is today, and all it ever has been, is a system of records — a way to record transactions that have happened. That's all. All currencies have ever been — they have all basically functioned as this reliable system of record, a reliable ledger. The fact that Bitcoin is a reliable ledger is just clear.

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Harry14:53

I'm going to go for this. It's not even a Friday, it's Wednesday, it's midweek, but I just want to go for it because I want this discussion. I totally understand the point on value. I just don't see the point on usage. For me, we have great payment rails in Europe — for sure I can't speak for the US, I think they're a little bit more challenged — but the financial ecosystem is strong, open banking improves it even more. I don't understand the utility value. Can you help me understand that?

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David Ripley15:21

Yeah, as far as where it's superior as a form of currency, there are a number of different ways. And the delta in how well it performs as a currency — frankly, I would assert that it's inherently superior for almost everyone in almost every place. Not yet today, because we haven't built out the infrastructure and it's not in people's hands, but we're on the way there. There's certainly a range. If you look at an individual like yourself or myself — US, Europe — payment access we have as individuals, retail consumers, is pretty good relative to most places in the world. But we look at other places in the world, and just with respect to access, it is drastically different. The same level of technology, speed, cost — all these different pieces. Again, I wouldn't say it's fantastic in the US or Europe — there are certainly challenges. Banks operate nine to five, not on weekends. There are a number of things. There is huge cost. Somehow the financial services industry is the most profitable industry out there — that money is coming from somewhere, right? So it's coming from us, and we're paying a tax to these companies simply to hold our money, to allow us to transact with our own money, and it's a significant cost.

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Harry16:49

Okay, so if we go back to that — in emerging markets, or in less-developed markets, okay, we can kind of play that one. But like, actually, M-Pesa has been an incredible innovation in large parts of Africa for payment flows for many years. It's well ahead of a lot of European and US financial products and tools. I kind of think, yes, a lot of financial services aren't actually bad. Neobanks are innovating incredibly well on a lot of the traditional challenges. Even Nubank of the world — I agree, Brazilian banks were a nightmare, Nubank has innovated incredibly well. And so I'm like, well, does it need a new currency, or does it just need new providers, vendors, and products to make it better?

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David Ripley17:38

Let's keep going. What else are these currencies supposed to do? One of them is to hold value. One of the things we've seen, to varying degrees, is substantial inflation. Again, this varies significantly from one part of the world to the next, but it's a meaningful problem — frankly even recently for people in the US, but substantially so in many different parts of the world. That has gone on for hundreds of years, frankly, since the existence, creation of fiat currency. So this is a hedge against inflation.

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Harry18:18

So we're in Argentina, and we have incredibly volatile currency swings, but Bitcoin is a hedge against that.

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David Ripley18:25

Of course, yeah, absolutely. As a currency, it has built into the protocol a fixed supply and is inherently not inflationary from that standpoint.

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Harry18:42

Do you not worry that the volatility — you're like, 'Jesus, Harry, Christ, I came on for a nice chat' — do you not worry that the volatility of the swings means that actually it's not really got use in transactions? Say, for someone in an emerging economy, and actually it's pretty volatile swings anyway. Dave, I have crypto, I'm much poorer, and I'm much richer.

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David Ripley19:07

Well, so there is quite a bit of volatility. First, I'll point out that it's a lot of volatility up and to the right across the history of Bitcoin, and it's not a lot of volatility down and to the right, as most fiat currencies perform when you just look at them by the hundreds. One of the things we haven't talked about yet is cross-border transactions. To the extent that Bitcoin continues to be adopted and grow for all of these different use cases — and there are many. We're talking about payments and store value, which is for sure the biggest one, and we should be talking about that. But to the extent that adoption continues to grow, the potential here is significant, and so of course you're going to have a lot of people investing on that potential outcome, albeit maybe farther off in the future. And that's going to lead to a lot of fluctuation in prices. And so we see individuals doing this, we see big Wall Street banks and hedge funds and big investment funds doing the same kind of investing, or even endowments, and all of the institutions that have started to kind of come in several years ago and continue to grow in the space.

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Harry20:25

They've all been kind of flimsy, and I've kind of pushed back on all of them, and we haven't really got like one Hail Mary, like store of value for when your currencies in really poor emerging markets have problems with stable sources of value. That's one that we've got.

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David Ripley20:45

There is some truth to what you're saying here. But again, I think it's a positive. Cryptocurrency has all these benefits — there's many of them. One where we see even our clients using cryptocurrency today — Bitcoin and other stablecoins — is for cross-border payments, and it truly is substantially faster, substantially less expensive than any other means they have available to them. But look, the fact that there are many different use cases for cryptocurrency — I would almost describe Bitcoin and cryptocurrency, what they are, as innovations similar to the internet itself — massive, huge, broad and wide. And so what we're really going to see is, yes, more narrow, specific use cases that grow and take hold over time, as opposed to the whole thing all at once, which is a challenge to really pull off.

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Harry21:45

I'm digging in on a couple of different bits. My trouble with my age, Dave, is my memory is not what it used to be. I used to have a pen and write on my hands to remember, but I sadly don't have that anymore. I'm always intrigued by the cross-border payments thing, because I'm like, ah, it's cheaper and faster. Who really needs cheaper and faster? If you're moving large sums of money — houses or whatever one is buying — it doesn't really matter if it's today or tomorrow, really. And actually, you're less price-sensitive on fees, and fees is kind of a commoditization game on who can charge the least. And so I find that one challenging, to be honest. Can I ask you though — I have so many people say to me, 'Ah, Harry, the future of crypto is actually consumers won't know that they're using crypto. It'll just be this beautiful infrastructure and rails.' I think it was Rebecca Kaden at Union Square Ventures who said that recently. What does that mean, and what does that look like for crypto adoption, when consumers will be using crypto but they won't know it, and it'll be infrastructure?

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David Ripley22:55

I think we're starting to see that in place. There will effectively be a set of service providers or companies that obfuscate away, frankly, a lot of the complexity that still exists with crypto and Bitcoin — we talk about having these clunky, long addresses that are necessary. There's of course the question on custodial versus self-custody, challenges with self-custody. So I think a lot of it goes toward, hey, all of this — the user experience still needs a lot of work to make it more simplistic and push a lot of that complexity hopefully more to the background, but do it in a secure way.

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Harry23:44

On the utility side, what would that look like if we move away purely from the financial services space, and the infrastructure that is used by consumers in a way that they don't know — what is that?

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David Ripley23:57

I think it could be a handful of different things. We have payroll and remittance companies that are clients for Kraken that run this business, and they simply use Kraken for backend liquidity — to convert from fiat to crypto — and they use the crypto side of things to move money from one geography to the next. But for their customers, they are providing fiat-in, fiat-out on one side versus the other.

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Harry24:36

Just so I understand that — so they're basically paying their teams in crypto, buying it through, and then sending it out in crypto? Is that it?

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David Ripley24:47

Just so I understand the payroll example: a crypto payroll company — a business wants to use them. The business mostly operates in dollars or euros, say, and so they need to find a way to pay out their employees in crypto, if that's what they want to do. They simply go to one of these payroll companies, they give them the dollars, and the payroll company helps them pay out their employees in crypto. That payroll company needs some liquidity on the back end — Kraken's a choice to do so.

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Harry25:22

Do you think we'll see a wave of companies paying their employees in crypto?

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David Ripley25:28

We certainly do. And there are quite a few. I think the use case largely — we come back to the global piece. Setting up global payroll is, frankly, incredibly difficult and complex, and only large companies can really do it successfully at reasonable cost. So I think a lot of smaller businesses, certainly freelancers — many of them use cryptocurrency already to pay their contractors, freelancers, or whoever might be helping out these small startup businesses.

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Harry26:07

If we take that as an example, you have like Deel and Remote, which are set up to do that. Again, is that not an innovation on the product side, not an innovation on the currency side? I love innovation, I'm a venture capitalist, my job is to invest in it, but I just can't get there. Bitcoin, cryptocurrency isn't coming out and being like, 'Hey, the world has never known transactions, or financial transactions, or payments, or money, or what have you.' Right? This is of course not what's happening. It is the alternative, better system, not something that hasn't existed before, if you will, at a fundamental level.

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David Ripley26:54

We're seeing this resurgence in crypto right now, and you messaged before about crypto's 89th obituary — why this thing will not die. I was intrigued to your thoughts on that.

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Harry27:09

Yeah, it was interesting, I was looking at that. I think we're up well above 89 today, as far as obituaries — the number of times that Bitcoin has died, crypto I guess as well.

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David Ripley27:24

It's interesting that we see this. The growth, kind of, if you look at it and zoom out to a handful of years, it's almost consistently always just continued to grow and grow positively. I think part of it potentially you could say, part of it potentially, are the cycles of huge growth and then pullback in the market. But if you look at the actual articles, when these articles come out, you actually see more of them come out in the kind of quote-unquote bull market periods. And so I don't know if — I think it's more so in the news, and so it's a bigger story for someone to kind of come out at that time with a claim that the thing is going to die.

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Harry28:20

How do you manage morale across very volatile crypto pricing markets? You know, when it's high, it's great for the company, and then when it's low and it's a crypto winter, it's a sucky, sucky morale.

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David Ripley28:36

Yeah, it's a very insightful comment because you couldn't be more right. It is — I always feel for you and for Brian when it's in the doldrums. There are a number of challenges. At Kraken, Krakenites are working at Kraken, focused on building the great company that Kraken is, but a huge number of Krakenites are very much focused on the broader industry and frankly what Kraken's mission is — growing adoption of cryptocurrency. They see the benefits, they see the positive impact on the world that we can have, and they want to be part of this. They dedicated their lives to advancing crypto, even almost irrespective of Kraken, and probably even have some of their personal wealth in crypto. So that further has an impact through these cycles. But I think the piece that holds us together for Kraken and a lot of us is that deep commitment to the mission. We're all very much focused on that. We talk about that in the good times, we talk about that in the rougher times, and that is the thread that really keeps everyone positive, even through the challenging periods.

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Harry30:02

Dave, you said about deep commitment — how many kids do you have? You have three?

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David Ripley30:07

I do, yeah.

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Harry30:08

How on Earth do you be a good father and a good CEO with three kids at the same time? What do you know now that you wish you'd known before you had children? What would you advise yourself?

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David Ripley30:20

Look, I have three kids — young, you know, five, three, two. I mean, just one is my wife Laura, that's probably an incredibly critical part of this, an amazing mom and all those different pieces. The other is, the reality is I spend an enormous amount of time and energy on Kraken. I actually spend a huge amount of time and energy on family. Of course, working from home kind of helps — our global remote model that we've had forever helps with that.

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Harry30:55

I'm going to lob a grenade in for this one — remote from day one. I struggle with this one too. I don't know any role that is better performed remotely, even engineering scrums. The collaboration that devs need together with product, with sales, with customer success — help me understand why is remote better?

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David Ripley31:17

I think there's a number of reasons why it's actually better. I hear you, there's probably a trade-off to the extent that you can be there in person at any given day, at any given time, there are benefits from that. It's like, okay, so what's the counterbalance to that? There's a bunch of tactical, basic stuff, which is commute time for individuals, allowing them to kind of structure their day, week, month however they see fit is really helpful from a flexibility and, frankly, getting work done perspective.

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Harry31:52

I worry about young people getting depressed. I think you see mental health drastically reduce, loneliness increase, companionship decrease. And I listen — for parents, I totally get it. For everyone else, I think it's good to be in office.

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David Ripley32:08

No, yeah, I hear you. There is something, and this is like each to his own.

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Harry32:15

I want to do a quick fly-around. So I say a short statement, you give me your immediate thoughts. Does that sound okay?

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David Ripley32:21

Okay, sure.

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Harry32:22

What's your favorite piece of content most recently?

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David Ripley32:25

Probably I'm reading the No Rules Rules Netflix book, Reed Hastings. Pretty cool.

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Harry32:30

Why do you think you need to improve most as a CEO?

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David Ripley32:33

I think probably the biggest piece is communication. As COO, I'm kind of communicating with teams in a more narrow space, but really communicating to the full company — two thousand plus. I've started to do that, need to do more of that. And frankly, this as well — communicating even outside of Kraken. I don't really have much of a social profile, starting to build a little bit of that, but it's pretty weak right now.

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Harry33:00

What concerns you most in the world today, externally?

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David Ripley33:05

Yeah, you know, I think it's probably the various different conflicts that we see. Are we seeing more or fewer as we go forward?

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Harry33:14

What's the most painful lesson that you've gone through that you're kind of pleased to have gone through?

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David Ripley33:20

One of the things that we've had to do a lot this year is pivot the company to focus on different areas as things evolved — regulatory environments and so forth. We did a lot of that, maybe reasonably quickly, which was a good thing, but didn't really communicate and execute it deliberately enough, such that it probably caused a lot of flail for the company.

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Harry33:45

Tell me, what one word would you want on your tombstone, and why that word?

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David Ripley33:49

Yeah, I think — you know, a little bit simple and basic, but I think that's something that's pretty prominent and important. Yes, there's all these things that we do to try and impact the world meaningfully, but I think kind of the individual relationships are just as valuable and important.

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Harry34:14

Dave, we do this in five years' time, it's 2028. Where are we then? Where are you then? Where's Kraken then? Take me to that five years' time.

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David Ripley34:22

Yeah, five years — this is a great trajectory. Look, I think we will be at a meaningfully different place as an industry, an order of magnitude bigger. I think Kraken will likely be more than an order of magnitude bigger in that time frame. And so this means that we're just going to be serving that many more clients, with that much more products and services, and really bringing cryptocurrency to the world.

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Harry34:49

Dave, I can't thank you enough for this. I've so enjoyed the discussion, I've so enjoyed you putting up with my British debate. It's been fantastic, so thank you so much.

D

David Ripley34:59

Fantastic. Thanks so much, Harry. Great being here with you.

Dave Ripley: Are the SEC Overreaching with its Approach to Crypto? Should Gensler Step Down? | E1108