Jesse Powell: How Kraken Accelerates Cryptocurrency Adoption (#313)

Transcript

this is epicenter episode 313 with guests Jesse Powell hi welcome to epicenter my name is Sebastian Cujo today our guest is Jesse Powell jesse is the CEO and co-founder of Kraken Kraken was founded in 2013 and has since become one of the largest crypto exchanges in the world I met Jesse briefly at SF blockchain week and I thought that he was a really down-to-earth kind of guy and we'd never

interviewed him before so it seemed like the perfect opportunity I really enjoyed our conversation with Jesse because he's someone who has a lot of context for what's happening in the space since he's been an ecosystem for so long and also he's someone who thinks deeply about the state of money and the role of money and government in our society so I hope you'll enjoy this one Brian and I went really deep with Jesse talking about the state of the ecosystem and the role of Kraken in that context there's something else I'd like to bring up before today's interview recently we implanted a small change where I started talking about our sponsors at the beginning of the show rather than in pre-recorded ads played during the interview and what's been

interesting is getting everyone's feedback on this you know what seemed like a small change and I want to thank everybody who reached out to us and gave us their feedback because it's been really helpful to understand the outcome of this experiment the feedbacks been kind of mixed but I think there's two key takeaways after doing this for a few weeks and I want to share them with you the first takeaway is that people seem to like having me talk about the sponsors at the beginning of the show it sounds more organic it feels much more natural to me and I like to be able to tell you about our sponsors and have that flexibility to update you on what they're doing week over week you know tell you about blog posts that they may have released or events they might be

going to or product updates and things like that and so it just feels like a win-win for everyone to be able to tell you about the sponsors and having them be part of the conversation that we have every week you know epicenter we've always been very selective about our sponsors we only work with companies whose products we use or who we think are providing value to the community and I'd rather be able to tell you about them in a way that feels natural then in a pre-recorded segment that gets plopped into the middle of an interview that you get tired of hearing after a while anyway so that's the first takeaway and the second takeaway is that the intros are getting way too long I mean people have been coming up to me and telling me like dude

what's up with these 20 minute intros they're way too long and I get it people just want to get to the interview so moving forward you should expect the interest to be much shorter we'll have a very brief introduction about the guests we'll have brief housekeeping to tell you about things like events were going to so we'll just give you a link and you can go to it if you're interested then we'll talk about our sponsors and get to the interview and then all the other conversations that we usually have during the intro whether that's debriefing a recent event or you know talking about the key takeaways in an interview I think we'll move that off of the podcast well move that into another format in another place where if you're interested in that kind of stuff you can

listen to it but at least you know those who are here for the interview and that's what that's what most people are here for you know they can press play and within a few minutes get to the content so I want to thank you for your patience and thanks for your feedback and once again if you have feedback or if you have any thoughts on this shoot me an email sebastian at epicenter TV SCBA STI en at epicenter dot TV or just send me a message on twitter so with that I'd like to now tell you about our sponsors for today's episode as you know cosmos was recently the sponsor of the defy hackathon SF blockchain week Sonny and I were both there it was a huge event with over 600 participants and what was really cool was to see projects leveraging IBC to

create interoperability bridges with other zones in the cosmos ecosystem now you might remember that before cosmos launched there was this thing called game of steaks which was an adversarial test net challenge where all the validators got together and participated in a test net in order to learn about how this new proof of steak network was actually gonna work because this had never been done before well similarly with IBC an interoperable network of block chains has never existed so they're now doing game of zones which will be a test net challenge once again that will create an opportunity for everyone to learn about the nuances of the IBC protocol so a game of zones is due to start in

December or January they haven't quite committed on the start date yet but they should be coming out with that soon and the interchange foundation is providing 100,000 atoms in a prize pool so unlike game of steaks there won't be just one winner but rather a multitude of challenges and prizes attached to them so to learn more and start discussing with the the cosmos team and other teams in the ecosystem go to cosmos network's last Geo Z and you can join the riot chat there to get the conversation going you should also sign up for the newsletter where I'm sure they will be updating everyone on the progress of gaming zones and you can sign up at

cosmos the network just scroll down to the bottom of the page you'll see the sign up form in the footer I would also like to tell you about trail of bits you know keeping your smart contracts secure is a big undertaking and you need to work with experts to do this you can't just leave this to anyone smart contracts can hold a lot of value and any hack or major vulnerability could cause you and your project a lot of reputational damage or worse and trail of fates is really at the forefront of security research and boy it's really hard to keep up with everything that they're putting out and writing so since I've last told you about trail of bits they've put out two new blog posts one

is on security assessment techniques for NGO projects so if you're a NGO developer you really want to check out this post I mean most of it goes over my head but I'm sure that if you're an experienced NGO developer you will learn a lot from this post and the other which came out as I'm recording this is about test-case reduction so test-case reduction for humans for machines and all about implementing best practices when doing test cases so once again if you're a developer and you want to learn more about these topics go to their blog blog trilobites comm and if you're interested in working with trail of bits you know there are a number of things that they can do for you and your team

of course they can audit every aspect of your project they check your smart contract code but they also help you implement best practices around things like DevOps and key storage and your even your user fixing applications like your website and your app your mobile app they can even put a software security expert at your team's disposal so you know if you don't want to hire someone to do software security at least give yourself the benefit of having someone at your disposal who can answer your questions when you need them it's absolutely pivotal if you're building any smart contract infrastructure to learn more about drill bits go to trail if it's calm and if you decide to reach out make sure it let them know you heard about them on epicenter we'd like to

thank cosmos and trail of bits for the support of the podcast and with that I'd like to bring you our interview with Jesse Powell we're here with Jesse Powell jesse is the co-founder and CEO of Kraken and we're very excited to be to have the opportunity to interview Jesse today Jesse thanks for coming on the podcast absolutely thanks for having me guys so starting off I think your origin story has been told many times but you know just for some context here tell us how you first got involved in crypto yeah so I just randomly read about it sometime in early 2011 is probably like March 2011 and it was just some some blog I don't even remember which one it was some article about

Bitcoin and I just thought well that's sounds really interesting you know already was in the business of dealing in virtual goods for that the last ten years at that time you had a company selling virtual items and currencies for online games like world Warcraft gold and Diablo swords and all kinds of stuff we did about 20 different games so when I read about Bitcoin I was like oh maybe we can sell this Bitcoin stuff on our website you know along with all this other stuff were already selling you know it's just another virtual currency but then as I got more into it you know I became you know more aware of like what it really

was you know was much more than just another kind of world of warcraft gold and I had been familiar with other things in the past like eagled and you know I knew about Liberty Reserve anything about these other sorts of forms of digital payments that were all like kind of very sketchy and subject to be shut down by the government you know at any time you know so you know this is like one of the problems for World of Warcraft gold as well if think you know even though world Warcraft had maybe tens of millions of players he couldn't really rely on it as a bank account because it was centrally controlled you know there's just one guy he could shut off your account you know any time and you basically lose your whole savings without recourse so in fact that did happen to people occasionally you know

the the real appeal of Bitcoin was that this was totally decentralized and there was no way to shut it down and you know actually as I was learning about Bitcoin I got more into just how does the money system actually work you know how's the Fed work how does Fiat work just a parent that this this system was a scam you know fiat currency you just lose value over time until they eventually blow up and replaced by something else so you know I think that the dollars that is about you know on on schedule to blow up sometimes saying so you know I think Bitcoin was just appealing in that if you could actually have a global currency that was not controlled by

anyone that was finite that was predictable you could maybe solve a lot of the world's problems you know that are kind of created through this inflation process you know which basically finances is endless wars and ridiculous unsustainable policies and things like that you know like what would happen if a government was actually forced to balance a budget where people actually forced to to be made aware of what they're actually financing you know and also if people weren't forced to really think hard about the investments they're making you know just to to have a store of value you know like you can't just leave your dollars in the bank account if you want to store your value you have

to actively think about putting your money into something else that is not going to depreciate at the rate that the dollars depreciating and I think for most people that are living just paycheck to paycheck like that's just not something that they really want to think about doing you know I think people ought to be able to just leave what they earn in the bank and have that not just depreciate over time so Bitcoin was appealing to me for many reasons and you know I haven't even gotten into like all the reasons why I had just practically as a currency it was good and you know it solves a lot a lot of payment problems that we were having at that virtual goods business which were like just dealing with credit cards and

chargebacks and micro transaction fees and international customers or customers who were kids and didn't have credit cards so just kind of the the unguided nature of Bitcoin solved a ton of those problems so it was just like the value proposition of it was just obvious to me back then and II am just gonna do then yeah it's interesting I mean I think we've done a few interviews with people were they kind of came from this you know this virtual good space I remember also Brock Pierce but I think he also came from this area yeah actually no brand from the business from yeah what they kind of looked like when you

started taking Bitcoin seriously did you initially try to sell a through that website or did you you know pretty or like how did that sort of lead into working on an exchange yeah we didn't actually ever start selling it through the website although we did start using it to buy gold and other other virtual goods from our suppliers and so you know there are probably a lot of guys out there who sold something sold this world warcraft gold or something you know back in 2011 who you know sitting on a mountain a bitcoin now you know so we did that and that was huge because we were having to jump through many hoops to send money to china back

then because of the the cap so there's like a fifty thousand dollar cap per person per year you can convert from dollars into chinese yuan and we were buying like a hundred thousand dollars a week of world warcraft gold from china so that was like two new people every week that we needed to find to do this trade but after we could start paying for some of it and well in in bitcoin that obviously like alleviated some of that so that was great but yeah we never started selling it on that website i started doing some mining started doing some trading on mount cox we got actually set up a forum where we tried to like encourage gamers to use bitcoin to trade for virtual goods i didn't really catch on i think it's probably a

little too early you know eventually after mount GOx got hacked in June of 2011 you know an old friend of mine Roger Vere happened to be like living nearby mount Cox at the time he was also in Bitcoin at the time this is like two weeks after I got in a Bitcoin Roger sent me a message saying hey have you heard about Bitcoin and I was like yeah I've been like you know totally in it like doing nothing else but Bitcoin for the last two weeks and then we kind of just like you know nerd it out on Bitcoin he so he fortunately was just like living next to GOx when they got hacked back in 2011 like for the first time that we know of and he went over there to find out what was going on you know there was like two guys in the

office one had just been hired yesterday and they obviously like needed some help so he calls me up and asked if I can come out to Tokyo to help them out and I did is on the next plane in Tokyo there for like a week and a half just helping them kind of get back on their feet and came away from that experience thinking okay there's got to be more than one exchange and I think we could do it and we've got to do it like in a really legit way I think if we're ever gonna bring Bitcoin to the mainstream and with like we've got a we've got to connect to the legacy we've got to get regulators comfortable things comfortable we've got to sort of build this bridge to the new world and you know once we get everyone over the bridge maybe we can like the bridge on

fire and burn it you know there's but we've got to get like everyone to the other side and you know you're not going to do that by being this kind of like dark market like back alley exchange it's trying to like skirt the laws and you know serve some needs like gambling market or something so you know from the start we had the approach that okay we're just gonna do this like totally legit Lee we're gonna be extremely careful about security we're gonna be extremely careful about what compliance responsibilities and basically just like be in exchange that would be sort of a good example you know for the regulators and the traditional industry and get them comfortable with the prospect of Bitcoin being out there and traded so you know I started the company with okay

who's our CTO at the virtual goods business who was like the best hacker I've ever met and also as a hobby was like writing BOTS for for trading stocks and stuff like that so sort of like the perfect guy to start in exchange with and if I didn't have somebody like him I probably would not have started the exchanges because of the complexity involved in the risks involved and especially the security stuff I was just extremely difficult so yeah you know I asked him if he wanted to do it if you wanted to start an exchange and he was game so we went for everything we got started in 2011 finally actually launched the exchange in 2013 we actually delayed by like six months

because early in 2013 in the United States FinCEN released some guidance that basically said like explicitly cryptocurrency is regulated and you need to be doing kyc and all this other stuff so we didn't have you know like postponed the launch to build in all these compliance tools that we didn't think we were gonna need yet I remember right that you actually started working on it really early on and then it took quite a long time to launch did you end up also launching in Europe first was that right yeah so sort of by coincidence or necessity that we launched in Europe first we

unfortunately were not able to get a bank account in the United States for years actually we defend like a small bank and we quickly kind of outpaced their processing ability I mean like their wire transfer department was basically like you know two guys and once our transfers started to pick up you know we were basically like a hundred percent of their wire transfer business and they said like look we're gonna have to we're gonna have to hire you know like ten more people to do all your wires and we can't really like justify doing that because we don't know if this is just like you know like a fad or something a blip you know we can't like add ten

people to the payroll and then you don't have to fire them like two weeks later so you know and they were also kind of concerned about like the risk profile of the business and so they shut off our account so you know that was kind of short-lived we didn't really have availability in the US or for US dollars for very long did it occur to you to just say like maybe we need to buy a small bank and just piggyback that license and and sort of grow good because it seems like you know if the company is able to do it like that that might be a good route to go down yeah I mean back then though that was not an option we just didn't have the money to do that but later down the line yeah I mean we could we could potentially do

that today the reason not to would be I mean things have developed a lot over time so I think for the most part like banks are getting softer and more willing to work with Bitcoin companies but um you're always at risk of your intermediary banks not wanting to process your transfers so like if you're sort of like the crypto bank if you're like that's your business and they know that's your business and you don't really have like other business outside of that I think it's easier for them just to say like this is a high-risk Bank they're doing high-risk business the compliance burden on us you know we think with with like processing these

transactions is is too high we're not gonna process your transactions and so you know unless you're one of the the major kind of mech nodes on the banking network you're going through these intermediaries and I mean even even the major nodes effectively can block your transaction so it's not just like having a bank account it's not really like a peer-to-peer right them so yeah you've got to deal with all of these intermediary banks who effectively are like not running compliance checks on you the bureaucracies run deep is what you're saying for sure yeah I mean at every hop and the network is basically required to like police you unfortunately you know so we actually kind of launched in your first just by

chance I mean we were able to get the bank account with Fedor Bank in Germany very early and I mean that was just by luck and also by luck for us mount Cox was the only other euro market at the time and when they collapsed in 2014 we basically absorbed that entire euro market business so that's kind of how we got started in Europe and eventually you know the u.s. opened up and in other parts of the world opened up so it sounds like it was a combination of good timing and also a little bit of good luck yeah absolutely that the business took off so so strongly in Europe cool well there's so much to cover on this

side that I I think like this part of your story has been covered quite extensively and numerous other podcasts and online so we do want to spend a considerable amount time with you talking about the ecosystem and sort of like where you see things at the moment and how you see things moving forward so I think that's that's really the valuable insights that we're trying to bring the audience you know a lots happened since 2011 since the those first years when when you were getting involved in Bitcoin and since Kraken has been founded and has grown to becoming one of the largest exchanges in the space but you know looking back on the last year I mean we can use this to frame the discussion what do you see is the most significant shift that has occurred and in the last year us

with regards to the crypto space in general great question I feel like we keep going through these cycles of Bitcoin blockchain Bitcoin blockchain you know I think we've seen regulators take notice finally I think libras a big part of that but you see more more governments kind of coming around and getting a handle on you know what would like crypto means for them and what choice and currency potentially means for for their money so I think like that sort of like the theme of at least like the second half of of this year yeah I think it's gonna be interesting to see how this plays out but I think the cats out of the bag you

know that the private currencies or corporate currencies and crypto currencies are all just gonna be a thing and people are gonna have choice in which currencies they use and I think it's gonna kind of force the hand of governments to become to make their currency more competitive basically and you know I think that'll mean tokenizing I think you know it sounds like we're probably gonna see something coming out of China like a tokenized government backed currency and maybe that'll force the hand of the United States as well and in other countries too to tokenize at least their currencies whether that's a good thing I don't know right that's kind of scary but personally I like using cash if I can't use cash anymore and I have to use

this government currency which is on some blockchain which is completely transparent you know that's kind of scary so we'll see where this goes but you know hopefully it's sort of just it it serves as a gateway drug to people getting into true crypto like Bitcoin which can be more private and obviously you know just better better in the long run yeah I mean that's what I'm seeing for this year there's obviously all sorts of different things going on it's great to see the crypto keeps growing there's some very cool stuff happening in Wyoming where the governs past 13 blockchain bills which make you know working there which make being a

consumer they're much safer [Music] more understandable and you know they have clarity about how things work so I think we'll also see more governments try to do that as a to give themselves sort of an economic leg up on the competition in terms of like where people locate their businesses yeah totally one thing I'm curious about your fault song so you're you're obviously very you know kind of a mission-driven and you're committed to pick on an cryptocurrencies and you know kind of stuck to change they can bring to the world and you know at the same time you have any change but you have this model

that you give up custody right so you have this natural tension in a way of like the one of the core ideas of crypto assets is that you kind of control your own assets and then and so how do you kind of like reconcile that was that like when you when you started cracking this is something that you know concerns you and like how are you thinking about around this ask this question of like who custody the funds who has kind of like control of the private keys in the end yeah you know I think we all know what the consequences can be of not holding your private keys but you know I see this the current state of things is

sort of the the bridge state you know like I don't expect and I don't hope that you know it's gonna be like this forever that the exchange has to be a centralized custodian I hope that you know eventually we get to some sort of hybrid model where people can hold their own keys and they can still make trades somehow you know it's some sort of maybe a credit relationship or you know maybe trade slowed down substantially and but you know they have full control of their keys through the whole process and it's just more like atomic swaps happening on the blockchain I think there'll be developments in the tech along the way I think is just this is sort of like a necessary point we're at right now and it's convenient and I think in my primary sort of concern at the moment is

just getting the most people possible into crypto I think we really need to hit this like critical mass before the government governments around the world you know decide that they could do something about crypto if they wanted to you know I think just growing the size of the network is really important in doing it quickly it's really important and I think to do that we just need to provide the best user experience that we can and that is not unfortunately gonna be everyone has to control their own private keys and you know you gotta like I don't know find ways to to get into Bitcoin that aren't you know through centralized services you know so I think I hope that you know longer-term if you

don't have to keep their money on the exchange but for now I think it's just necessary for the user experience to get people on you know you need exchanges to another sort of broker type businesses to to offer Fiat rails so somebody has to integrate with the banking system to get people on and off in in a convenient way and you know unfortunately like this the centralized wallets are far more convenient than a decentralized wallet if you're actively buying and selling but I think the user experiences are getting better and you know hopefully over time we just see kind of a shift away from the the centralized services on - you know people holding their own

keys and their own wallets and you know that the cold storage stuff is getting better and easier to use but you know it still safer for most people if they're not holding a ton of money it's just probably easier to use a centralized service because you also have the risk that you will somehow screw up your cold storage and lose your keys and you know that's not a very good user experience either quite a few eccentric changes you know most notably by Nance but I think also like BitFenix at some efforts around that - you know I've been working on creating decentralized changes is that something that like you also imagine the future that may be cracking

itself would become more with these central exchange or maybe is that is it something that you guys also have like work going on in that direction yeah we've got like some research going on in that direction nothing like actively in development yet but yeah I would like to see us at least have an option to to do your trades in a way where you maintain control of your keys through the process you know like I said there's some there's some hybrid models out there you know they're trade offs right now like the Dex's is not super great yeah yeah but uh yeah I think eventually you know it could be that we we completely swap out the current like custody and matching system

for a Dex and then we're just sort of like a customer service and banking gateway sort of layer you know on the decks which would be great and that'd be fine you know I think there's still there's still a lot of value that we can provide even even you know in a Dex type of world I'm curious on your previous point I thought it was a very interesting point right that we basically want to get to enough adoption so that like a government crackdown becomes really hard and you know you kind of can't stop this momentum anymore that the space has like what do you think this scale that we need to reach for that is necessary and what do you

think are some potential risks if we if you don't reach that scale and then the government's really do start to try to like crackdown aggressively on crypto yeah it's a good question I don't know kind of where that tipping point really is I mean you can kind of look back at like what happened with PayPal and I guess like just um extent what happened with uber you know and there's just like get big fast kind of strategy where like even if you're breaking the law all along the way if you get big fast enough and you have enough users who have become dependent on your service you can leverage those users to lobby the government to allow you to keep doing

what you're doing even though like technically it might have been illegal this whole time you know like maybe you get the law changed or some exception made or whatever and I I don't know like where that is for Bitcoin I don't think we're anywhere close to it you know unfortunately at least in the United States right unfortunately like the countries with I think the most power over you know the most users of Bitcoin are the countries where the use case for Bitcoin is I think like not as strong right like it's probably strongest in a place like Venezuela but the Venezuelan government doesn't really have that much authority like internationally you know where's like the in the US and in Europe the governments have tons of authority

internationally and the use case is not that strong because people have tons of other great working payment options and you know it's easy to buy gold and whatever else you know there's you can invest in stocks it's not you know people generally have access to all sorts of financial products so you know I think like I don't know what it's gonna take to get people in these countries more interested but probably you know I think we're we're just starting to see the cracks in the system you know people are worried about stuff like the repo market and just the system potentially breaking down at some point you know I think brexit is well hell is like another kind of sign that like maybe things aren't aren't gonna be the

same going into the future they're easily accessible and in these places like Bitcoin doesn't really have a use case where where we're seeing a proper use case for Bitcoin as money is in places like Venezuela like you know where like there's a good product market fit there you know if you look at Bitcoin as a product there's a perfect fit in a place like then it's whele are you more of the opinion than that you know there needs to be sort of a radical shift in our economic landscape in order for Bitcoin to and crypto in general to gain traction and succeed in places like the US and Europe is it gonna take like a massive financial shift like a massive financial crash for instance for that for people to wake up

to the fact that you know their money's unsound and that there are alternatives out there like like Bitcoin in crypto unfortunately I think so I think people tend to you know look for ways to alleviate their pain and you know this is why I like uber is so successful just like if it's so hard to get a taxi in the United States you know almost anywhere outside of like New York City that the uber experience was just like a life changer and it doesn't really you know exists with crypto right now like there's not a use case for me that's like changing my life with crypto although you know I think one thing that

is increasingly reinforced is that this this notion of like digital privacy and you know there's just like data leaks constantly happening that there is a cost to entering your personal information into the computer every time you buy something online all right I think this is this is like a very strong use case for people in the Western world who generally have access to financial services yeah but it's a different use case don't you think because like financial sovereignty and privacy although they may overlap at some point you know they're a little different so I see one as you know the use of blockchains

to build something like you know a decentralized social network or like something like status right where one's data is encrypted and they can communicate with their friends and family like you know in encrypted manner like peoples bank account and their ability to like transact and know that they're gonna have enough money to eat tomorrow like that's a different thing yeah for sure where do you see people's like because I mean I think that for the financial sovereignty application it might take a drastic event like for that use case to emerge as the one thing that people flock to on the privacy side I think that might resonate with a lot of

people in the crypto space but outside of that the majority of people are still using Facebook etc unfortunately it seems like maybe maybe people just don't care about privacy and then you know then I don't know what it's gonna take I mean even I even question whether a financial and major financial collapse kind of she you know unless it's at the scale of like Venezuela would be enough and we just look at like the adoption of gold as well right like people could have bought gold before there was Bitcoin and you know I could probably like 1% of the people that I know had gold you know before Bitcoin so you know I just I think most people are going through life

I'm just thinking everything's gonna be ok it's it's working now if there's a problem I'll deal with it when the problem is at my door so you know I don't know honestly I don't know what what it will take to to get people to become better prepared I guess you know the idea of crypto is kind of better money and a better sort of wealth and and you know Isis as a protection from just potential you know that's a collapse of the US dollar or other fiat currencies do you think that will be the primary way of crypto getting mainstream adoption and maybe the primary use case or do you feel like there are other use cases that might be you know one where a

lot of the value is being provided for crypto or maybe that end up being a sort of gateway to get people to adopt decent fast technologies and crypto assets yeah I think there could be there could be some other sort of gateway things you know I think that these like stable coins actually could be a good gateway like if we can if we can get merchants to adopt stable coins that could be a gateway in you know I think also if we see more fracturing within the EU and if we see more national currencies emerge that could play a part right like I don't want to constantly like change currencies you know three times in one day as I'm traveling through Europe so

maybe you know something like that some some new like reintroduced friction in payments somehow could could cause there to be more adoption if not of Bitcoin but of some sort of like multinational stable coin kind of thing I think stable coins are a great gateway I think they're also probably more acceptable to merchants who don't want to take volatility risk so I hope that we see the proliferation of of stable coins and of their acceptance as payments and then once everyone has you know a stable coin wallet or whatever you know if the square app is taking stable coins squared cash or you know other PayPal or whatever if they can support a stable

coin balance then you know maybe they'll they'll support a Bitcoin balance at some point as well people just realize like why am i holding on to any time I'm holding on to a balance that I'm not ready to use I should just be keeping that in Bitcoin because you know my Fiat coin or whatever is going down but you know other other blockchain use cases that I think are interesting are just like the tokenization of assets generally which you once tokenized you can use as collateral for all sorts of stuff right so like if let's say you could like tokenize your house you know that's useful in that maybe you can you can sell your house without having to deal with all this crazy escrow and title insurance and all of this stuff

you can track the ownership and you could post your house you know conceivably like with anyone you know some sort of like multi-sig like contract as collateral for something and you know then get it back when when you're done with that contract so I think there's like really cool or like just really cool d-phi stuff that's coming I think there's also cool like provenance stuff like you know tracking the the authenticity of luxury goods for example so yeah I think there are other use cases for blockchain that will maybe expose people to to crypto I'm not sure that these things like necessarily translate though too

to seeing you know the value prop for Bitcoin I kind of see like holding Bitcoin is like holding gold and just because you're doing all sorts of other things doesn't necessarily mean like you know you want to hold gold or Apple stock or you know anything else if you know if you're living paycheck to paycheck you're not really thinking about making investments so you mentioned a defy thing which has been a bit of a you know I think a lot of attention has gone into that know Nene hiriam is come kind of that the most the most adoption is around defy use cases with things like maker compound and you know I think we're starting to see some of the earliest signs of defy in in other ways to whether that's with cross chain stuff or you know people trying to move

maybe Bitcoin off the Bitcoin chain what do you what do you think is the value that defy will bring to sort of a wide range of people and and maybe like I mean the tokenizing of assets is and so is the increased asset utilization do you think that's kind of the thing or do you see other yeah well I think the main appeal is that it's it's not centralized and you know you don't have to get kyc to to now like earn a return on your ether for example you could be someone in the middle of nowhere with with no bank account no financial access you

know completely shut out of the system and now you have a way to to participate you know in investing in stuff and even like just low-risk stuff you know like you just want to you want to hold your ether but you know you're long ether but you want to put it to work somehow and get a return on it I think that's super cool and I think just the more we see of that you know I don't think we're ever going to beat the old system at their game you know I think the best thing is just like you know stand-up the new system and their billions of people who are excluded from from the existing system and and also there's just the amounts of money that people might have to invest or to stake or whatever could be just not worth a centralized business

dealing with you know but if you can stake like you know ten dollars or something like that you don't have to go through kyc process deal with customer support you know walk into a physical location whatever I think you get much more participation at a smaller scale so you kind of like get the last mile like you know these billions something people who they're just working with amounts too small or they don't have kyc or whatever they're excluded from the system so I think the impact of that those people coming into the system will be huge and I think they'll kind of start to provide this you know the kind of bootstrap the network and we'll see more liquidity

come in and I hope that you know eventually we sort of have just stood up a an alternative system and people can kind of leave the old system and just use the defy stuff because it's super cool I totally agree I feel like it is basically just a you know from the ground up new better more open more efficient more transparent financial system but one of the big challenges around it is that you have all of these existing regulations right and they you know especially when you when you started talking about defy they seem to apply or or at least the regulator's probably think they apply and even

though they don't we fit well into it or it's kind they're kind of incompatible in a way but the old-fashioned regulations and then these new networks new technologies how do you see that playing out and what are your thoughts on the regulatory environment maybe especially in the US yeah I think the defy stuff could be could be tough with the regulator's you know like we've already seen at least one decks settle with the SEC and you know a lot of these projects are still highly centralized in terms of like who's developing them I mean they're very transparent about who is writing the code you know they might have people out there representing the

there might be like an actual company behind the defect product so these are obviously like points of weakness you know when it comes to the regulators and I think you know it might take like a real kind of Satoshi type of person to to launch a contract that isn't really tied to anyone's particular identity and then you might need you know for a while some anonymous maintainer zuv the contract so that it's not something that can be attacked by regulators but um you know I think in the US yeah this is this is obviously a problem I think the regulator's

fortunately it seems like they've kind of just been going after the the lower hanging fruit and going after the obvious scams but at some point yeah you could see them coming after basically software developers for for writing this software that allows people to do things which might be illegal in some particular jurisdiction you know wouldn't be the first time we've seen this and it has one great thing about the new laws in Wyoming actually they they make it explicitly not the developers fault if something illegal is done with their software however you

know that's just in the state of Wyoming it doesn't cover the federal laws and doesn't cover federal enforcement or international enforcement so you know I think that probably we will see if they do end up cracking down on some of these defy products I think we'll probably see them relaunch more anonymously so I don't really see it being an issue like long long term unless they get really serious about sort of shutting down all of blockchain tech you know with like a firewall around the country or something like that yeah but they could they could theoretically enforce some form of action on on exchanges not to engage

with like these defy contracts for example like should one of these defy contracts exists they could force companies like Kraken not to allow customers to withdraw their funds there and which would you know of course people could circumvent that but that could be one one way to hinder such a thing I'd like to bring it back though in the in the context of regulation and specifically with regards to Kraken and like the exchange space you know a lot of the big exchanges make changes like Finance and he will be are outside the US Apollonia axe is now shutting down US operations give us your thoughts on what this means for Kraken and also how this

relates to the u.s. regulatory landscape the CEOs have a competitive landscape for exchanges or will we see all of the major players basically move outside of the US well the u.s. is a huge market so I don't think you're gonna see everyone leave the u.s. you know where we're committed to staying inside the United States as long as it's reasonable but you know it's it's 20% of our business and 80% of our compliance costs so you know it's very expensive to do business in the US but you know we're part of our mission is to bring everyone into crypto you know where we're not gonna do that by abandoning the United States you know

we've we've chosen to leave New York because of the bitlicense which was just way over the top wait two ownerís and burdensome to deal with and you know attempted to regulate our entire global business so just didn't make sense there but um you know I totally understand why businesses are getting out of the US the you know we're now like 11 years into Bitcoin and we're still lacking clarity on many fronts the regulators here are very active in cracking down you know there's just so much more you can do outside of the United States I can see how you know for the sake of simplicity and there's the

cost savings you would just want to leave the US and just say like okay we're just not going to deal with that because in in almost every way it's an exception to the rest of the world you know every almost any product you would want to list would be legal everywhere else almost any product you on a list would be illegal in the United States and there may not even be a license available to you to list that product so it's just much easier to exclude the United States but you know for us we're playing the long game we're trying to bring people in a crypto and you know we're committed to working it out here and so do you think crack and will because another thing that you see doing that is that there's just a segregation right and you

have basically sort of different products what you have like an American product and the International product and many changes now seem to also get into you know some adjacent businesses whether you know that's lending or maybe staking I mean you guys even have derivatives now as well so if you think like how where do you see cracking going in that regard yeah so we plan to lunch taking you know we would also like to launch other products you know especially if we can provide an interface to other d-5 products that are out there I think that'd be really cool I'm curious how is your staking and offering and it look like basically it's

you know I should do in let you to the beta but basically it's you know you have your balance you effectively like fund your your staking wallet you commit to staking for X period of time and then you basically get like your share of the pool of what the rewards were I'm at the end of the the period and you there's also a way to like unbond like you know for penalty and stuff okay so you know just basically taking the entire balance on these change and then staking net or but people explicitly opt into it yeah you have to opt in although it's possible that there could be I guess some some coin which has like basically no unbonded period or like no slashing

risk or you know something like that where maybe it would make sense to just like automatically do it for people but yeah as it is now you have to explicitly stake your coins well one other thing that I would love to to kind of dive into a bit it's so cracking right you started this as a you know once upon a time and was a tiny startup and now it's become a large company where I think we've around like how large is crackin now in terms of maybe users and number of employees yeah the number of accounts is something like four million the number of employees is just over eight hundred in scaling scaling a company what has been the most you know the most

interesting lessons and the hardest things well there's been tons of tons of tough things with with growing a business and you know this gets as the company grows it's just more and more just kind of like people related issues that come up as you get larger you know you just kind of like I guess you also have these like effects of the network which are bad in some ways you know just that like the bureaucracy grows like the layers increase and more people need to give approvals on things or they're just more people having more interactions with other people who they don't really know there's more opportunities for miscommunication there's more opportunities for you know like HR

complaints just for things to fall through the cracks I guess you know and it's it's a very different dynamic you know then when you had an office with like five people in it right and like everyone knew what everyone was doing and everyone was kind of like a generalist but I guess that you know like one of the tough things that I've noticed over time is just you know some of the guys that came in really early who you know not everyone grew at the pace of the company right so you have like some guys who maybe came in early they were really good at doing something but the needs of the company kind of outpaced their personal development and you have to hire somebody like on top of them and that could be uncomfortable for people you know some people will roll

with it and are good but yet not everyone deals with it very well a lot of people who just love working at like an early stage startup and have not you know felt like okay now the company's like 800 people it just seems like things move more slowly you know it's not the kind of place they want to be anymore so you deal with that too I mean the things changing over time and say like that's kind of difficult we've tried to hold on to like the same culture through the whole time you know which is really focused around you know the experience of both the customer you know like our values really keep the customers secure give them excellent customer service and also

internally at the company we want to basically treat our employees the same way we want to keep them very secure and we want to give them basically like great service as as employees so most of the most of the guys in the company if they are like ideologically driven by the mission and that's fantastic you know sometimes it's like a double-edged sword we have definitely had people who said you know like I have tolerated us doing kyc on people you know for X years but you know this new level of kyc I just like can't handle so I've got to like leave the company or I'm gonna you know like become suicidal so you know this is like it's great to have people that are like so passionate like that

let you know at the end of the day we've got to run a business and we just have to do things a certain way you know to to survive and to continue to to drive the mission forward you know like scaling fortunately there are tons of great tools now for remote companies you know G suite just come a long way slack is great in some ways some ways not so great but you know these these online collaboration tools are really really good I think it's really easy to run a company remotely now if you're doing it I'm kind of remote first if you're thinking about the remote employees first then I think it can be great you know like lots of people went

from commuting for two hours a day to a commuting zero and you know I think they're more productive this way you know they also have more flexibility in what they do if they're taking care of kids or something like that yeah I guess the company has changed a lot over time you know we end up dealing with like just kind of a lot of structural kind of related issues you know now that I didn't before which are like interesting problems to solve especially like I'm in a remote environment you know I think we're solving and I'm a lot of things for the first time you know there aren't many companies of this size who are as remote as we are so they're sort of like interesting business problems to solve on top of all the crypto stuff yeah that's I mean it's

really impressive that you guys have managed to grow this large and maintain that remote aspect so I mean epicenter is a remote company were less than 10 people and I find sometimes a little bit difficult to manage but yeah like I mean the tools exist all that sort of infrastructure stuff and I think is there and you know we were mentioning before the show like you know kind of naming off some of the the big startups out there that are also a remote I think like the infrastructure side is probably you know somewhat mature but one of the things I think that's probably that I'd like to ask you about is you know how do you maintain culture and a fully distributed company where people maybe are not interacting physically as much where you know if like culture is very much about people and the connections

between people how you guys managed to you maintain the culture in this context yeah good question so you know our our online chats are are very open you know anyone at the company can contact me at any time I'm constantly like chiming in on all sorts of topics and I pretty open dialogue with with the whole company we try to you know I personally try to talk to everyone in the company as if they're appear you know I think that that that kind of like vibe like permeates throughout the company where everyone so we sort of just see it as kind of like

an ideas first kind of thing and a meritocracy and that you know if anything is open for discussion you know if you if you have a good idea put it out there and you know it'll be it'll be considered and I think we've just got like a really good dynamic there we do a lot of retreats so we'll have teams who will get together you know at least like twice a year to do you know just a in-person kind of Meetup which could be a different place every time you know we've had guys going to Mexico to Bali to Thailand you know all over they'd be get to choose where they want to go so it's kind of like a fun it's not exactly

a vacation because they usually end up doing a ton of work while they're all together but it's a great like bonding experience and it gives people FaceTime and they're always coming back away from these things like you know much closer I think that this component of it is really key this like physically getting together once in a while because when you're just online you know unless someone is really hyper with the emojis it's just like kind of hard to know what someone's vibe is you know like you know are they saying that in like a mean way like what was their tone when they said that and I don't you know I don't know but like if you meet them you kind of like get a feel for for who they are and and then you start to like give them the benefit of the doubt you know the third

cool person we we connected you know in person and there's no reason why they would be like being mean to me so I would say like if you're running a remote company these just definitely do like these retreats as much as you can at least you know if not at the whole company level all together try to get the teens together to do this one yeah yeah that's a great point I think I think we should do this more more often - yeah I mean so if we of course one night so the other company I started to video every three months have like religiously exactly on the three months of cadence it's also remote team I mean it's much much smaller just seven people but that we all get together in one place and work for one week and I think it's absolutely crucial

I think emojis are very underestimated as convey you know true it's so true sentiment in companies we met actually for the first time here as I've watching we come as we're recording this I'm still in San Francisco and flying out a little bit later today but you were on stage with Charlie Shrem and you guys did a live podcast recording which was kind of cool and you know I didn't catch all of it cuz I was like running around and seeing but I did catch one thing which I thought was really interesting and that was that you guys have an ideological purity test when interviewing certain candidates for certain positions absolutely so tell us a bit about this and how do you maintain

sort of a fine balance between like people's intentions and test yeah what's the test and and I how do you how do you maintain a balance between people's intentions and you know sort of like their political positions and how do you you know how do you navigate that and make sure it doesn't like cause problems within the company yeah well I think if any if anyone is a statist they're not gonna work out here but you know we this is like especially a crucial component of the the customer service function like everyone who goes through the customer service interview gets the ideological purity test and we think it's very important for this role

because these guys are on the front lines interfacing with the clients all day every day right and I think that they they're not only you know representing Kraken but I think they're representing crypto as well and to the extent that they can talk to people who often come to us just very general questions I think you know part of our mission is really sort of as missionaries to proselytize crypto you know to preach the word of crypto and to get more people excited about it to bring people into it to give them a good experience with it and you know I think if you just see yourself as well I'm just a customer service agent I'm only

here to answer questions about like why you know why the buttons not working now or whatever then you know you're really you're not operating it kind of full potential you know I think they're missed opportunities there so that's a big one for us you know we just we want those guys to really to really walk to walk the talk so how do you test for that so there's a bunch of questions we give people you know there's there's actually like a very very tough just kind of general crypto trading knowledge test that people also get when they are applying for the the customer service role but the test is is a bunch of questions about and it kind of varies

depending on who's interviewing but it's about you know sort of like what are your views on fiat currencies where your views on taxes the state how do you think bitcoin is going to improve the world do you think the world would be a better place if you know we just had Bitcoin and no fiat currencies what do you think you know the appropriate amount of use of force by the government is what do you think about it other endless wars that you know the u.s. is launching internationally there's there's all sorts of questions kind of along these lines of sort of in many ways it's sort of like a test of your degree of like libertarian thinking or

you know your degree of understanding of Austrian economics and your sort of passion for crypto I think like these libertarian ideas are you know they permeate through the crypto space but they're much stronger I think in the in the u.s. context then say in European cultures yeah for sure they're yeah I mean if you're interviewing someone from from the Nordics you know for example they might be fully happy with with the tax that they're paying and all of the great social services that that they receive so you're not hiring Nordics is what you're saying no no actually we have we have a few you know it's it you

can be totally fine with the system you know I think that it's just kind of like about your attitude for it in like understanding of it and and whether you know I do think that there are taxes that people can voluntarily opt in to you know basically it's a service fee you can look at it as a service fee and you know if I were moving myself from California to a Nordic country I would be seeing it that way right I'd say okay look this is what my tax bill is gonna be what did the services that I'm getting for this you know like what's the trade basically what am i paying for what am I getting yeah I mean there's a lot of other things that go in there too I think like this quality of life in general sort of like infrastructure and

the company I mean this is being in the US right now has been really interesting so I live in France you know Brian is in in Germany I think in the crypto space we're probably like the most definitely in the podcast base the most like EU maximalists that ignore your eccentric I wouldn't call myself you know like sort of like adhering to the ideas of sort of like you know Europe and being in the u.s. because I don't travel here very much has really sort of opened my eyes to like a different perspective and I'm not exactly sure that I'm fully on board with all of it I mean like you know in France we pay a lot of taxes but I'm like generally fine with paying those taxes because I know

that like I can take the TV and like be anywhere in the country in like three hours the metro system in Paris is like phenomenal yeah I've got like great health care if I lose my job like I'm basically good for two years like all these things right you know talk to people here you know you this race especially in the US and the general feelings like well you're getting screwed in France cuz like you're paying 50 percent taxes I'm like this I think like culturally it's it's it might be challenging to get everybody to a line right unlike these kind of things yeah I think you know what you're talking about in France is just the quality of the deal and and I think most people in America feel like they're not getting what they're paying for

well you Aleph or Nia doesn't have rail system that goes from San Francisco to Los Angeles that's ridiculous like all of the power lines are still above ground and you know constantly causing these wildfires there's just like you know the infrastructure is deteriorating like the state of public education is terrible we see like trillions being spent on like offensive like military actions and stuff it's just like you know where is the money going yeah no totally I think that's one of the things that stands out but because in the end the tax level is actually is about the same right in the u.s. at least when you get to as in Europe right because you can also get let's say in a few place like California especially and then if you a place like

San Francisco but you have maybe the most wealthy place in human history in the world and it says that public infrastructure is so terrible and it's the roads are broken the airports run down like everything is and so yeah he's definitely like where this is money all ago it isn't so I there's an entire hour long conversation at least just on this topic i what i want to bring it back to cracking real quick cuz i mean one of the things that i think stands out about cracking compared to some of the other exchanges it's been a little bit more conservative with regards to the tokens that that it lists you know if you compared to something like finance do you have any criteria for like how you guys go about

thinking about the tokens you list and how does that evolve over time so basically we keep like a short list at all times of the tokens that were kind of interested in and these tokens can be proposed by anyone in the company and we kind of run it through a formula basically of we look at stuff like what do we think the revenue is gonna be from from adding this coin we look at kind of like second-order stuff like if we don't list this coin how many customers are going to lose because we didn't list that coin right like who's gonna take their entire portfolio and move it to another exchange where they can trade everything they want to trade what is

the you know is there some sort of like good PR good marketing around this is this coin maybe it's not a coin that is actually going to be heavily traded but it's kind of like a darling of the the community for some reason or it's like very maybe very interesting technically maybe it's something that like the devs are really interested in working on we look at obviously like the compliance implications of it you know is it do we think it's a security do we think it's somehow you know otherwise regulated or even like privacy coins in many places are not are not legal at the moment so we have to look at like the technical lift is it a very early stage coin that's like making you know hard Forex

every two weeks it's gonna be like a have a high maintenance cost anything else you know potentially dangerous about it you know that we wouldn't want to to deal with and obviously like whether or not we think it's actually got some sort of like longevity to it or whether it's a scam you know obviously we don't want to list anything that you know I was just just gonna blow up you know in six months we want to list projects that we think actually have some merit and have some longevity to them and are actually like working from a road map developing stuff actually like building something yeah all of this goes into you know basically like a scoring system and we have a committee of people that review the tokens and kind of look at all this stuff and come

up with with the ranking and goes into the dev queue and you know lately we've been even getting out about like three a month on average we got a bunch more in the pipeline and they're a bunch of a bunch of you know cool coins coming up in the future as well they just haven't launched yet so that's sort of how it works are there any instances where projects have paid you or can pay you to list or is there something you don't engage in at all we don't do that at all not even not even in like convoluted ways where you know they're promising us to do X volume or where they're you know paying us buying fee credits over over two years you know nothing nothing like

that basically we take like no form of compensation whatsoever we feel like you know well we could and it's offer all the time we don't want to put ourselves in in you know a position of having a conflict of interest with our clients we don't see our clients as the product you know that is to be sold to the highest bidder you know fleeced by whoever's willing to pay us the most yeah we really want our clients to feel like we are kind of protecting them from from a bunch of garbage that's out there we're not selling them out we're making money off the trade tees that's very transparent you can see how much money we're collecting that is the only way that

we're collecting money you know we're not selling data we're not taking listing fees we make money off of you in one way and that is the the transaction fee on your trade and I think by by providing that sort of safe space and having you know a threshold for like the quality of tokens were winding a list I think people feel more comfortable with us they trust us and I think in the long run that's gonna be very important kind of overlaps a little bit with the way that we I think we run this podcast is try to adhere to you know some degree of integrity with regards to the projects we have on the show or that sponsor us and so yeah like I I think that's a great approach yeah and then just that I think I mentioned that before the show

but I wanna mention here too is that yeah I've been crackles definitely my main exchange that I've used since I think over five years now so yeah thanks enough I've been a great fan of it well maybe a final topic here I'd love to hear a little bit about sort of your vision for cracking you know in the future I mean it what do you see the company look like in three five years down the line yeah good question I guess the some extent is gonna depend on how the regulatory situation plays out and in places like the US and I guess we might see some kind of like multinational collaboration on

regulation which could change things basically where we're expanding as a general financial services company so you know along the lines of staking hopefully we can we can launch other types of products that people are interested in we can expose people more to defy can list more tokens may be great to start trading other types of assets like just direct Forex or even even to give people a way to trade stocks I think would be really cool so we're working on all that kind of stuff you know hopefully the company continues to grow I don't know if I mentioned you know we also encrypt a watch which is you know building all sorts of cool stuff with charts and like basically

like allows you to hook up multiple exchanges and view your have consolidated portfolio and stuff which is sort of you know we're hoping it kind of becomes like the Bloomberg terminal of of crypto so we're continuing to push that we're also building other tools like crypto watch actually also comes down with like a crypto finance Google sheets thing which basically lets you like pull tons of crypto data into Google sheets or working on stuff just to make like you know tax reporting easier I'm just getting the data where you want it easier we've got the OTC business we've got the index business obviously futures maybe we're getting options you know there's there's infinite financial services out there I guess that we could launch so I

think more products hopefully better products hopefully more funding gateways internationally like that's a big focus for us is connecting up to local funding services so that you know people don't have to send wire transfers from wherever they're at you know ideally they they have like a local funding option that they can use to to fund their Krakken account more internationalization so like better translations more translations we've got a number of license applications in around the world so I think will become more heavily licensed to do more stuff all of these new lines of businesses that you've mentioned like for example

the ability to trade stocks and stuff do you see this as a response to you know some of the other participants entering the market like for example eToro has come into the crypto market heavily heavily funded that are spending millions of dollars on on marketing how does crack and continue to be competitive and to be relevant in a space where a massive quote unquote traditional finance actors although he Toro sort of a bit outside of that how does kraken continue to be relevant in that context yeah ii torres got such great ads i think you know yeah so it is is is in some ways um you know response

to that although when we started the exchange we thought anything could really happen in this space you know we built it from the beginning with the idea in mind that you know could be something terrible happens with crypto and we can't trade crypto anymore so you know we also thought from the beginning we think you know namecoin was already there like ripple was already there we thought okay there's gonna be a bunch of these assets we want to basically build kind of a general-purpose system for trading anything and so we've always had it in mind that we would trade stocks we would trade Forex or other commodities but yeah more recently I mean you see guys like Robin Hood

offering exposure to the Bitcoin it's not really trading Bitcoin like you can't withdraw it you know it's not like physical coin but you get price exposure which is I think what most people care about yeah I think you'll you'll start to see this sort of I guess like these businesses converging on sort of the same feature set eventually or like very close and um you know for us we kind of started with crypto and you know we're moving more towards now like doing other sorts of assets it's gonna be a necessity I think you know people want to trade as much as they can in one place and so I think to remain competitive giving them that selection

of things to trade is important I also think that people you know want to be diversified and and not just in in crypto so you know you might want to hold some Apple stock alongside your Bitcoin so I think being able to offer that in one place is important to people also you know just for capital efficiency if you have your your stock on your crypto in one place yeah your your sort of total account equity is more you can you can get more margin you can get more leverage or you know whatever it's just is this much more convenient to have it all in one place so I think that's like inevitable and I think you'll see many many other exchanges in the space kind of move in that direction as well well I think that

one of the things that sets you apart and gives you a great advantage is you know your longevity in the space and also your your ideological purity to some extent and you know I say this for you but also sort of for the company and what you guys are building so thank you so much for being on the podcast today it was really terrific and great to meet you in person last week and hopefully the next time we do this we can also do this in person that'd be awesome yeah thanks guys yeah thanks so much thank you for joining us on this week's episode we released new episodes every week you can find and subscribe to the show on iTunes Spotify YouTube SoundCloud or wherever you listen to podcasts and if you have a Google home

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