Kraken CEO dissects the future of the metaverse, NFTs

Hi, thanks for having me.

That's right, yeah. Jed McCaleb, Roger Ver, the list goes on.

I think a lot of us in crypto grew up as nerds into fantasy and sci-fi, and you know, I think we spent a lot of time in books and on computers and in a world that was not the physical world, you know, in our own imaginations or on the computer in a virtual chat room. So I think this all feels very comfortable to people. You know, Magic: The Gathering is its own little bubble. You have these sort of proto-metaverses in the chat rooms of AOL back in the day. You've got Second Life, World of Warcraft, RuneScape. People grew up playing these games, and I think that this new stage of the metaverse, where you have these goods, these virtual tokens or this clothing or whatever it is you can take between these different platforms, I think is what people are really excited about now.

Yeah, the idea for NFTs goes way back to the earliest days of Bitcoin. There's an idea called colored coins on Bitcoin, which are basically bitcoins that are uniquely identified to represent something else, proof of ownership of something else. And you know, going back to the early days of Bitcoin, we thought the blockchain could be used for tracking proof of ownership of things, provenance, tokenizing other things like stocks and that kind of stuff. So I think we saw this coming. We weren't really expecting it to explode the way that it did in the last year or so, and I think a lot of that has to do with just some mainstream projects, you know, NBA Top Shot being like one example. The CryptoPunks really taking off, the Bored Ape Club. You know, I think that somehow this has captured the mainstream consciousness, and I think that it's really relatable to people because the kids that have grown up over the last 20 years really are familiar with this idea of a digital store of value, digital representation of value, virtual clothes, virtual gear for your virtual avatar. So I think that's all very familiar to people. You know, I think what's new is this concept of maybe we can have these different metaverses, which are maybe some decentralized, maybe some not, but they all sort of respect this common layer of these assets on the blockchain that you can take between different platforms.

Yeah, so I think exchanges can continue to play a similar role that they have over the last decade, which is to be that super easy on-ramp for new people coming into the space. You know, you don't come in already having Bitcoin or already having Ether or Solana. You've got to get that from somewhere, and I think exchanges are a really good bridge for those people. You know, they're regulated, they work with governments, they're connected to the existing on-ramps and the legacy system, which is largely bank accounts and credit cards, which you can't just plug your DeFi smart contract into directly. So I think exchanges are a really good on-ramp for those people. You know, they're the shepherds, they have customer service teams, they can help people get through that first stage before maybe they want to go on to do more advanced things in DeFi.

We do have something in the oven for NFTs. You know, I used to run an e-commerce platform for virtual goods, World of Warcraft, RuneScape, Diablo. You know, we did like 20 different games. I also used to run an art gallery, so I've got some experience in the space. We're cooking up something that we think is going to be pretty awesome, and it'll be out hopefully toward the end of this year, early next year.

Yeah, I think the consumer part of our business is much newer, as you said. You know, we kind of started out with crypto OGs and a real professional trading platform and sort of moved into the consumer space more recently. But you know, I think we're all going to be competing for the same kind of demographic, these people who are interested in NFTs and are coming into the space for the first time. So I do still think it's anybody's game. You know, I think Kraken has a very strong reputation and brand in the space and is known for really understanding the crypto audience and the crypto ethos. So hopefully that comes across and hopefully we manage to capture what people are looking for with our product.

Yeah, some of that comes down to the chain. You know, the fees on Ethereum are relatively high compared to the fees on Solana or some other chains. So I think you'll see this transition of new projects move to chains with lower fees. So I think that's part of it, but this is like a constant ongoing cycle where something becomes successful, gets more expensive, and then people move on to another chain. There are obviously scaling solutions coming to Ethereum as well, so that hopefully will solve some of the fee problems. But as far as who's going to win the metaverse game or who builds the best experience, you know, I really think it's going to be fragmented and sort of federated in a way across the chains, where you have these common assets that exist on the chain and you can move between quote-unquote metaverses. I don't think there'll be any single metaverse. You know, you could think of World of Warcraft as one metaverse and Diablo II is a different metaverse and RuneScape is a different metaverse or Axie or Facebook. And you know, some of these will be games and they won't have items that are compatible across the games, but maybe there'll be some skins that are compatible across the games. And I think it's the same for Facebook and other kind of proprietary platforms, where I think they'll support these blockchain assets and some representation of them in their world, and they'll all have different rules and I don't think anyone's going to have a monopoly on this.

I think there is room for a lot of different chains that serve a lot of different purposes. And if you have a specific use case in mind, you can design a chain that does that thing very well, or it may have an advantage over a generalized system. You know, I think Bitcoin is still the best at storing value. I think it's still the best at security. So you know, I don't see Bitcoin being disrupted in the near term. You know, I think that the game for smart contracts is totally up for grabs. You know, I think Ethereum is a dominant player now, but you see Polkadot and Solana and some other chains coming up that maybe could steal a lot of that thunder from Ethereum with regard to smart contracts. So I think we'll continue to see an evolution of these chains. I think it's anybody's game right now, and I think we ultimately end up in a world where there are lots of successful chains that are operating simultaneously.

I think the metaverse is probably a little bit overhyped right now, but I'm just thinking back, you know, on my own experience, we've seen various versions of metaverses over time. You know, I mean, you could even look at Fortnite as a metaverse, Roblox, Minecraft, you know, Second Life as sort of one of the very first iterations of this. And you know, these are all successful to different degrees and for different purposes and different niche audiences. So I think that, you know, people are making it out to be something more than it is. You know, we've had this, and so, you know, I think the next phase is really these interoperable assets and maybe that's game-changing. But I also don't think anyone really has, you know, it's not going to be a winner-take-all space there. I'm sorry, could you repeat the second part of your question?

I think like if you look back at Second Life as an example, there is some of that. There are sort of like pornographic areas of the game and there are gambling areas of the game, and they're like very kid-friendly versions or areas of the game. You know, so I think there will be these niche areas that break out. You know, I don't know that porn or gambling benefits especially from the metaverse, from some sort of like immersive 3D environment. You know, I think if anything, you know, these things just, you probably don't want your pornographic engagements managed on the blockchain because, you know, this is like very traceable and it's probably like the last thing you want carved into stone for all time. So I think, you know, that stuff is probably more likely to stay where it is with traditional finance.