Fireside Chat with Arjun Sethi – Out East Summit Conference 2025

Yeah. I think I'm pretty philosophical in the way I think about what happens in financial services and fintech. If you were listening to the last panel, they were talking about where things are going to go. I actually think if you look at the foundation of where we are now, we're trying to figure out what collateral moves into crypto. What I mean by that is real world assets, tokenized equities, memes, meme coins, meme stocks, etc. As this moves more into the crypto ecosystem and plumbing, what are all the tools, services, and systems that you use? Kraken was one of the first exchanges to promote not just Bitcoin but the next altcoins that came in, Ethereum, etc. That's how you should think about what Kraken looks like today, continually moving forward. We've launched tokenized stocks not just on our platform but in the DeFi ecosystem. We've partnered with a bunch of other exchanges. We're providing liquidity. But what's more important is what does Kraken become from here and how do we use that liquidity and exchange layer to build a new set of products that might be in traditional finance conversions of what we call traditional financial products.

We've always acquired companies from a regulatory footprint. Today, Kraken operates in roughly 180 jurisdictions. We're regulated in Europe, Australia, Canada, and the US with market structure built, all going in the right direction. I think we think about M&A in a couple of different directions. One is regulatory footprint if needed, but we haven't really needed that much. Then there is tuck-in talent, which everyone thinks about. Then there is whether we have the ability to move into an ecosystem much faster, thinking about our rails, tech, and distribution for another product. You saw that with NinjaTrader. We're moving into the convergence of traditional commodities, futures on commodities. We're now technically one of CME's largest partners, which is great when you think about the percentage of revenue we bring in for them and for us. When you think about where they are today and the crypto rails moving forward and where that collateral moves, it's all about how people think about trading, savings, yields, etc. Things are happening much faster than people realize, but also much slower. When people think about real world assets, we're not thinking about acquiring too much in that direction right now because there are a lot of regulatory headwinds. But when we think about assets moving into crypto plumbing or tokenization, either we'll move forward and do it ourselves or figure out ways to partner, and that's where M&A comes into a bigger play.

I think where we got lucky really early on is that when people got into crypto, they were either an exchange for serving institutional-style clients or they moved into retail. Take Binance or Coinbase, for example. They built a wrapper and then an exchange in some sense. They weren't technology-forward first, which helped them in the beginning to get the average everyday person on, consumer, prosumer, however you want to define it. What's happened now is that everyone's competing for the same customer. Our approach has been that we got lucky in that we focused on professional traders, which is a movement over the last 25 to 30 years, but it's been under the radar. NinjaTrader, professional traders, you never would have thought about them. Kraken Pro, the exchange, the trade engine is catered to that professional trader wherever they are in the world. It's a smaller set of people but a larger set of capital. When I have them, they're recurring. They trade on volatility up and down, and they don't churn as heavily as consumer products. So when we think about financial products, I'm thinking about serving that customer base. Now that I serve them, they help me promote other types of products. We've gone into payments, remittances, savings and yield products for average everyday customers, but we offer all those products for free. We're not charging a spread. We just say, 'Okay, great. Now that we've got an exchange, we have more flow, we've got liquidity. We can offer a lot of these services for free.' Kind of think Google and YouTube. That's how we think about all the financial products we have and what we can serve out there to keep the base cost at zero.

I think it's going to be a combination of both. It's multiplicative. Take someone like Citadel, they have their construction of what they want to do and how to approach every market. The segmentation of these folks matters more than anything else. People talk about crypto as if it's one small area, but what is crypto? Crypto today is already a specific type of spread trades, FX trades. Now you have meme coins, Bitcoin, ETH pairs, and so on. Millions of things we're going to start thinking about moving forward. The long tail is getting larger and the head is getting larger at the same time. When you start talking about tokenized equities, issuance of new real world assets, what's more important is when that collateral from traditional folks moves over to global liquidity systems, then you can start thinking about having one unified set of platforms. That doesn't mean just Kraken, it means crypto liquidity and unified collateral systems, so you can start moving things in a non-fragmented way. I think that's where people miss the forest from the trees. Now when I'm thinking about risk management, I can move in and out of positions within seconds, microseconds, whereas today it can take minutes to hours to weeks depending on which systems you're on.

The amount of time it takes for anyone to get into crypto or even onboard into an exchange takes time. You have to learn the nuances of each venue: Binance, Coinbase, Kraken, OKX, any of the decentralized exchanges. You have to learn your way, crawl, walk, and run. I don't think it's as easy as someone saying they're going to go into crypto and moving into it the next day. I think the best days are obviously ahead of us. Every institution, every book, every prop trade, every traditional institution thinking about deploying capital into these markets or even storing capital or savings or getting some sort of yield is starting to think about how to do it, how to integrate, and who to work with. It's not about where we go from here; it's about can we continue to provide trust and services that we've already been providing in a continuous way and then continue to improve on that. For example, we didn't do much custody with traditional institutions a year ago. Now the only customers we have are traditional institutions; they're our number one customers. That's the way to think about it. Because we're an exchange in crypto that's vertically integrated, doing asset-based revenue, staking, lending off our balance sheet, we're also a principal and an agent for many different products. We let people do spot plus margin trades, futures. A lot of this comes down to where's the venue you trade from, where's the venue you explore from, and where's the venue you do risk-based assessment on.

The piece that's really important is how do people get access to trading assets. The stablecoin bill that just passed, the GENIUS Act, was more about safety and security of what it means to have a stablecoin and who's going to be on that. Now Tether has some time to figure out how to get into the United States. USDC becomes part of the ecosystem. All of these regulations will give clarity to market stability and market structure, not just for us. Who's your regulator? Is it the SEC, the CFTC, or a combination depending on whether it's a private token sale all the way to going public? At this point, depending on if there's a new bill sponsored from the Senate or we take the Clarity Act bill for market structure from the House, it's really going to be what are the rules of the road for someone who wants to start a token no matter where they are. Where's the venue they go to for raising capital, and where's the venue they go to in order to go public? Outside the United States, they've just said all this stuff is crypto and it's got a set of rails, just go. In the US, we're trying to figure out how to plug the gap between traditional financial products and what's going to happen in crypto. There are some forward-thinking there, but at the same time, it's kind of backwards. It's like the AI bills: we can predict what the flop is going to be in the next six months, whereas every week something changes and they're putting in stopgaps for innovation. My hope is that when we think about market structure, it gives the ability not for the exchanges, because it's less restrictive for us, but how do you make it less restrictive for a protocol? Whether it's tokenized real world assets, a protocol, a utility, digital token, commodity, whatever it may be, to have a path to build their business rather than think about what you need to do to talk to the SEC or CFTC. That's the goal, where you don't have to waste your time.

Those core values are shared by everybody at the company. It's part of our culture, part of why I joined and invested in the first place. Jesse being a maverick is essentially saying that we care about our first 10 amendments, our Bill of Rights. It's core to what it means to be a US citizen. It's less about what it means from a regulatory perspective; it's just our culture. This is why we build Kraken the way we're building it today. Here's the set of products we're building, including tokenized equities. Here's why we launched to Xbox to be 24/7 permissionless. Kraken doesn't need to own it. If you wanted to do it through a non-custodial wallet, we will. It's more about how do we move all of our profit dollars to continue to innovate and move the industry forward. That's what we care about most. Everything we're doing now is in line with that. There's a set of products we'll want to be in line with from a regulatory perspective; we totally get that. But there's a large set of products we're building where we say, 'Okay, here's the mission of what we've been trying to achieve from the past, what we're going to continue to do in the present, and what we'll continue to build in the future.' The layer 2 we contribute to is in line with that mission. What we're doing with XOXOS is in line with that mission. What we've been doing by decentralizing pieces of what we do are cracking into very specific feature sets and venues of intent for what you want to be able to do. Do you want to save, store, send, or trade? We think of those as different experiences, not embedded into one. The more embedded it is into one, the more centralized it is. The more centralized it is, the more you go head-to-head with the regulatory.

The other hats I wear are on the capital allocation side at Tribe Capital. We do private investing but also public investing in India specifically. What's most interesting is that you have these market cyclicalities. I'm not the first to talk about it; if you read any of Howard Marks' books, he talks about options value versus intrinsic value. Whenever you have some sort of supply and demand, I'll try to dumb it down. Whenever you're in a place where you've got a lot of heat in a certain market, you tend to get a lot of FOMO and fast followers in a category. That might mean company number one gets copied by 50 companies. That might mean a treasury play, SPACs in the past, using the word crypto, going on CNBC and saying the word crypto and suddenly you're a crypto company, just like in the past with dot-com or AI, machine learning. I think of this as part of the course. You're going to have these highs and lows. Is this company actually compounding and does it have fundamentals? That's what I care about more than anything. If you take a three, five, or ten-year outlook, any of these companies, if you were to ask Arjun, 'Would you invest your own money into some of them?' I'd say no because it's a play on arbitrage. That's how we think about it, how we think about my capital. One of the reasons why we invest or how we think about our capital allocation strategies even at Kraken is more about: are we compounding? Are we making money cash in and cash out? Do we have a healthy margin? Are we growing efficiently, or are we just growing for the sake of it in terms of people, processes, or tech? Are we doing something that's going to have an actual return on our invested capital for the effort we're putting in? I don't know why this happens, but every two years someone is deploying capital in a certain area that adds a lot of options value into something but is intrinsically not value to anything.