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Kraken Co-CEO: Stablecoins Are a "Far Superior" Payment Mechanism | Markets Outlook
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- [00:00]
David Ripley
Stablecoins are just a far superior payment mechanism than anything that exists in traditional financial services. Far superior. We, of course, back in the day thought like, hey, well, how are we going to get Bitcoin and or stablecoins to be used for payments? You have this huge catch 22 where in order for them to be used by payments, it takes two, takes a sender and a receiver. And so you need to build a network. And the problem is in order for everyone to kind of like adopt Stablecoins or Bitcoin all at once to use them on payments, it just isn't going to happen. But what we saw happen is that many people adopted Bitcoin for whatever purposes, a big one, the inflation hedge, the investment on future gain and adoption of the network, all that type of thing that put Bitcoin and Stablecoins in many people's hands. Stablecoins then kind of arose as this, you know, settlement currency across all of the centralized and decentralized exchanges.
- [01:06]
Interviewer 1
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- [02:07]
David Ripley
Hello. How are you doing?
- [02:08]
Interviewer 1
I'm doing well.
- [02:09]
Interviewer 2
How are you Doing?
- [02:10]
David Ripley
Great.
- [02:10]
Interviewer 1
Well, congratulations on those Q3 numbers.
- [02:12]
David Ripley
Indeed. Yep.
- [02:14]
Interviewer 1
All right, before we get into that, talk to us about why it's important for. For an exchange like Kraken to have a presence at an event like this.
- [02:21]
David Ripley
Well, you know, we've actually been partnered with Ripple in some ways for well over a decade. We were one of the first exchanges out there to ever go Multi token and therefore list XRP back in 2013. So quite some time. We're also one of the first exchanges to list Ripple USD as well new stablecoin back in the spring. So look, we take kind of an open approach to the ecosystem, partner with all different blockchains, banks and payment processors on down the line. And so for me personally, I like to do the same when I'm attending events and conferences, kind of go to developer conferences, investor conferences, blockchains such as this one and kind of spread it around.
- [03:05]
Interviewer 2
So investor behavior is changing, right. And retail has a lot of different places to trade things. And I remember from last year you're kind of trying to go the other way and bring tokenized securities to folks to trade. So how do you keep your finger on the pulse of your, of your retail traders who are keeping liquidity in the exchanges and keeping that activity?
- [03:25]
David Ripley
Well, I think that's one of the most significant things that's happening right now and certainly what Kraken is leaning into. Right. And so when we look at our population of we serve kind of individual retail traders, individual professional traders, institutions as well, maybe starting with the kind of the retail and the individual pro trader group, you know, they want to trade assets, they want to trade a number of different asset classes. And so we made moves to move into TRADFI actually. And so now we offer a full suite of futures trading. We acquired the largest retail futures broker in the U.S. ninja Trader, pure play futures broker. So now we trade, you know, offer trading in futures for indices, commodities, affects and the like. Same with equities, you know. So we also are registered broker dealer offer trading equities. The next step for that is kind of like bringing the, the two together in a really interesting way which would be tokenized equities, which is probably the most exciting thing we have going on right now.
- [04:25]
Interviewer 2
So big question. I'm glad I get to ask you this directly. I grew up in, in the equities world, in the derivatives world, but on the security side and you know, people have brokerage accounts. Not a lot of retail people experience the futures market except in crypto. Perps are huge. Right. So offshore people are very used to this kind of delta one futures experience in the regulated world in the United States. And this is a challenge for the cftc. Not a lot of people have futures accounts and understand using fcms. Do you think that behavior is going to change? Like how is, how is retail going to express their derivatives positions or their views on crypto exchanges? Is it going to be short Term options or do you really think they'll start to lean into futures and that will really kind of change their behavior?
- [05:12]
David Ripley
Well, I think in some ways, maybe not honestly. So we have, we kind of think about it from our different populations of customers. We divide in those three groups I mentioned before, consumer, individual pro traders, institutions. I think that individual pro trader segment where Credit Kraken is particularly strong.
- [05:30]
Interviewer 2
They'll trade futures.
- [05:31]
David Ripley
Exactly. And I think that's kind of the population of the acquisition we made. Ninja Trader, another peer in the traditional financial services space like interactive Brokers. That group, of course familiar with derivatives. What they want leverage, they're interested in trading. The action that they get on those.
- [05:48]
Interviewer 2
They can fill out the forms.
- [05:49]
David Ripley
I think when you get to. Exactly. I think when you get to the consumer population who you know has adopted crypto to some extent and will continue to do so, that's a much bigger population. You probably won't see quite as much interest in activity in derivatives as you do there. It won't be zero. I mean, I think equity options is probably where you see more of the activity from. Kind of like a more pure consumer retail trader in the traditional financial services space. We'll see some of that in crypto, but it's not going to be. I don't think it'll be a drastic shift. I don't think crypto is kind of changing the game with regard to spot and derivatives. I think that's going to kind of be consistent across the two spaces.
- [06:54]
Interviewer 1
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- [07:50]
Interviewer 2
That makes sense. And then so Retail, I think you still want them to trade across your kind of really wide population of names, some of which they won't be able to access and things like ETFs and funds and stuff like that.
- [08:02]
David Ripley
Yeah, of course. I mean, I think the retail population for sure. I mean, probably you would look at that group, the consumer group, historically pre crypto, largely trading equities, maybe doing a lot of, you know, know, ETFs, mutual funds, all, all that type of thing. Crypto has a right to be part of that group for sure. And is, is in fact, I mean, we look at the younger populations, substantial number of them are now adopting, you know, even just Bitcoin, Etherium and so forth as part of their portfolio.
- [08:31]
Interviewer 2
Bitcoin volatility has plummeted and this wasn't hard to predict, right, because you have a bigger user base, you have a lot of Bitcoin locked up, supporting ETFs and in DAX and things like that, you know, and other assets. I guess, you know, ether volatility is kind of where Bitcoin volatility might have been 18 months, two years ago. You know, in, in traditional finance, volatility is bad and diversification is good. In crypto, it's sort of the other way around. How do you expect trader behavior or your customer behavior to change if volatility continues to compress?
- [09:08]
David Ripley
Well, I think that's inevitably the case. And what we frankly, you know, going back a decade plus ago, what we've hoped for, what we expected to happen, Right? Yeah, no, for sure what we expected to happen. We expected more volume, more activity, more diversification institutions to come in, more liquidity. And that's going to bring volatility down over time. Also just additional use cases for Bitcoin, Ethereum and so forth, whether it be payments, other different parts of defi smart contracts also are going to bring volatility down. Now in crypto, of course, we have a long tail of different other names out there and there's plenty of plenty of tokens without a shortage of volatility, that's for sure. And so that's going to continue. So but I think it's a beautiful thing that we now have, you know, volatility continually coming down. It's still frankly fairly high relative to some, you know, other assets out there, like for example, you know, large fiat domestic currencies which tend to be, you know, reasonably more stable. So I think there's still, which is why we of course have stablecoins. But I think, I think over time the trend will Continue, you know, over the coming years, it'll just kind of continue to, you know, decline in its level of volatility.
- [10:25]
Interviewer 2
I've got one more for you. Sorry, Jen.
- [10:27]
Interviewer 1
That's okay.
- [10:29]
Interviewer 2
I think part of, you know, I've been in a lot of different countries helping to promote a lot of our products and with our partners and the stablecoin narrative being top of fold in the news has I think generated a lot more comfort for people across your user base. Your users in their Kraken accounts can keep their money in dollars or presumably in stablecoins. Have you noticed enhanced comfort level, a shift that people are happier keeping their money kind of more in a more permanent way in stablecoins?
- [10:59]
David Ripley
Well, you know, I think, I think for sure, I mean, when you look at the individuals in the crypto space first, I mean, stablecoins are just a far superior payment mechanism than anything that exists in traditional financial services. Far superior. We of course back in the day thought like, hey, well how are we going to get bitcoin and or stable coins to be used for payments? You have this huge catch 22 where in order for them to use by payments, it takes two, takes a sender and a receiver. And so you need to build a network. And the problem is, is in order for everyone to kind of like adopt stablecoins or bitcoin all at once to use them on payments, it just isn't going to happen. But what we saw happen is that many people adopted Bitcoin for whatever purposes, a big one, the inflation hedge, the, you know, investment on, you know, future gain and adoption of the network, all that type of thing that put bitcoin and stablecoins in many people's hands. Stablecoins then kind of arose as this, you know, settlement currency across all of the centralized and decentralized exchanges. Therefore we have it there. If you look at, you know, Kraken or any other company in the space that's already in crypto, holds stablecoins, holds Bitcoin. We would never think to actually send us dollars using a wire or Swift. We just don't. If the, if the individual or the business on the other side has stablecoins, that's what we use. And I think once now we got over that hump. Everyone who is already integrated with, you know, crypto or stablecoins has them on their books, knows how to do the accounting, all those types of things, which is somewhat of a lift. They're going to use stablecoins. And so I think we're getting to that point now.
- [12:41]
Interviewer 1
All right, let's bring this interview full circle. We mentioned Those record breaking Q3 numbers at the top of the interview. 114% year over year, 50% quarter over quarter. Talk to us about what drove this growth. Is it institutional retail? A mix of both?
- [12:55]
David Ripley
Yeah. I wish I had like a simple, fun answer for you on this. It's really across segments and frankly it's across all of our products. We have a number of different products. We start as an exchange a decade ago. Now we're a full financial services technology firm. We have of course, you know, the exchange, we have derivatives with asset based products, lending, margin trading, things like staking of course for, for crypto. All these various different products kind of grew across all the different product areas as well. I think one thing that's probably unique for Kraken is we really actually didn't do any marketing as a company. Historically in the 2021 bull market, we probably spent about $5 million in total on marketing. I mean, obviously now we're a multi billion dollar company, right? That's changed. We're definitely investing in marketing now and our growth engine is really, you know, cranking. And so for all of these kind of, all of this, all these products that we build, all these customer service that we serve, we're really starting to see dividends there. When we acquire a customer, we measure what's called payback and we see those customers pay back within a six to nine month period, which is fantastic frankly, relative to peers and other industries and so forth. And so we see that as a huge driver of our business going forward. That said, we also got some cool new products out there. We have crack, our new payments app X stacks we talked about before. And so a number of new innovations that are now small but we hope to contribute to significant numbers down the road.
- [14:23]
Interviewer 1
David, thanks so much for joining us at the desk. Good luck on your fireside later on today. It was a pleasure having you.
- [14:28]
David Ripley
Great, thank you.