#1561 Arjun Sethi | Is Bitcoin Becoming the New Global Reserve Asset?

Arjun Sethi is the co-CEO of Kraken. In this conversation we cover the intersection of traditional finance and crypto, why open permissionless systems will be the default, how bitcoin and tokenization will fit in that system, regulation, and where the world is headed. =======================Bitizenship helps Bitcoin-forward investors gain EU residency and a path to Portuguese citizenship in five years while maintaining exposure to Bitcoin. Their regulated fund qualifies you for the Golden Visa through an operating company focused on Bitcoin-native innovation. Book a free strategy call at bitizenship.com/pomp.=======================Simple Mining makes Bitcoin mining simple and accessible for everyone. We offer a premium white glove hosting service, helping you maximize the profitability of Bitcoin mining. For more information on Simple Mining or to get started mining Bitcoin, visit https://www.simplemining.io/=======================Core is the leading Bitcoin scaling solution, enabling you to lock in yield by locking up your Bitcoin. Simply lock it on the Bitcoin blockchain to secure the Core network, and get rewards. No bridging. No lending. Just holding. Still your keys. Still your coins. Now your yield. Start at https://stake.coredao.org/pomp=======================Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/=======================View 10k+ open startup jobs:⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Speaker 00

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• 0:30Speaker 01

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• 0:58Anthony Pompliano?

  What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode.

• 1:26Speaker 03

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 1:50Anthony Pompliano?

  What's going on guys? Today we've got an excellent episode with Arjun Sethi. He is the co-CEO of Kraken and someone that I've known for a long time. He's a fantastic investor and someone who thinks very deeply about Bitcoin, crypto and the traditional financial system. In this conversation, we cover what's going on at the intersection of traditional finance and crypto. Why open permissionless systems are going to be The default, how things like Bitcoin and tokenized stocks are going to fit into that system, what it means for individual professional traders, and also how regulation and the traditional players will all play into the system. Arjun understands where the world is going better than most people that I know. And today, he lays out exactly how the infrastructure will get built and what it means for you sitting at home. So I hope you enjoy my latest conversation with Arjun Sethi. Arjun, I thought a great place to start the conversation is,

• 2:33Anthony Pompliano?

  Robin Hood is considered a traditional brokerage. They sell stocks, but now they've added crypto fast growing segment of their business. Kraken, you guys are traditionally a crypto business, but now you guys are adding US equities. It feels like everything is just kind of converging in the middle. And whether you're an exchange or some other provider of a financial product, you're going to operate with a foot in the traditional world and a foot in the crypto world. Is that how you see this playing out? Or is there something else that we should be aware of?

• 2:59Speaker 04

  Look, I think one of the areas that people kind of miss is like, what does the future of finance look like? And so during the 70s and 80s timeframe, you had Michael Milken talk about the demarkitization of finance and like the types of products that were built on top of it. And so the, the, the future of finance at the time was essentially US world capital markets. If you think about what's happening now is you're hearing these themes, and it's not just today, it's, you know, over the last 10 years, we've been pushing these themes in, in the, you know, traditional venture Silicon Valley ecosystem, we used to say fintech, but it's like closed economy, closed system, closed experience. What we're really talking about here today,

• 3:40Speaker 04

  what I sort of profess more now than I used to, and you've been doing it for a long time as well, is like, the future of finance really is going to be programmable, permissionless, and then much more increasingly decentralized. So great, those are all like, great words to use, but what you're already seeing in what I call global liquidity markets is that you're seeing a shift from institutions being the gatekeepers to, to the protocols.

• 4:07Speaker 04

  And you're already seeing those gatekeepers of protocols being the rails. So crypto, and I also think that crypto no longer is becoming more and more commonplace, at least with folks like you and me, or the folks that we talk to, given the multiple hats that we wear, where it's just an asset class, right? Like when you start, you used to think about equities and crypto separately. You used to think about venture and private equity, public and private separately, which is fine. But I think when you think about crypto, it's not just an asset class, it's an infrastructure layer for global capital markets, global liquidity. I think the second piece to that is, you know, over the last two to three years, AI started to automate a lot more of this.

• 4:50Speaker 04

  So now we can, you're no longer requiring armies of analysts or ops teams to think about what tokenization means, right? Like it's like, right from the beginning, we can start thinking about how to value it, where does it get created, how do you distribute it, how it's owned? And so access from everything, from treasuries to talent in some cases. But if I was to break it down into themes around what we're all talking about now is that you have cryptos and infrastructure, AI and finance, DeFi and tokenization, open systems, which I think is really, really important, and then the hybrid trust model between traditional finance and what's happening in DeFi. So what does that really mean? Crypto infrastructure, trading, powering payment systems, identity, custody, credit, governance, AI and finance, what does that mean?

• 5:34Speaker 04

  Smarter, faster, leaner systems, where one person can do multiple things from risk to research to customer experience. DeFi and tokenization, what does that really mean? Moving real world assets and functions on chain, right? So private credit, private equity, treasuries, traditional equities, public equities, open systems, composability and interoperability. I think that's been left out for so long, which is, I don't need to be on a siloed platform. The platform doesn't have to own my customer experience. And then we can really start talking about what's been changing in the ecosystem around the hybrid trust models, which is regulatory clarity plus decentralized primitives, essentially will, and what I've sort of focused my day to day thought process on is that it becomes mainstream adoption.

• 6:16Anthony Pompliano?

  When you look at how this infrastructure is changing, it does feel like the people have been very receptive to this. Obviously, things like Bitcoin, stable coins, et cetera. They have been kind of first to use that. I think it's one of the first technologies, definitely in my lifetime and maybe in a long time, where the people adopted it before the institutions and the nation states and things like that. But now it does feel like the nation states are starting to turn and say, hey, wait, this like Bitcoin crypto thing, there's value there, right? And we saw this with the Bitcoin ETFs. Now you see it with like stable coins. You hear them talking about the fact that they want these people as customers, or they'll let them use their assets when they're lending and borrowing and things like that. But it still feels like they want to do things in their kind of gatekeeper centralized way. It's just like they look at the assets as like an input into that system.

• 7:01Anthony Pompliano?

  Whereas what you're talking about feels like an entirely new system that's like being built in parallel. Is that how you kind of see that the two different worlds, you know, kind of interacting with these assets?

• 7:11Speaker 04

  Look, if you, if you take a look at the internet and what happened there was there was a community and the way in which they thought about open protocols and open source. And there was a set of companies that said, okay, great, I'm going to take some of these open sources and create either closed communities or closed gate systems. Or I've already got a gated system. So like, how does the internet help me augment what that looks like? So you see that today. And by the way, I don't necessarily think it's a bad thing. It's just that we're evolving. And so traditional internet, we were evolving in a certain pace. I think what's great about like the future of finance and the crypto ecosystem is that we can work at a much more compounding rate and we can do it much more segmented for where it makes the most sense. So when I think about, you know, with my hat

• 7:53Speaker 04

  on for, for Kraken is that, look, the, I think for, for how we think about the world is the end state for Kraken is to become a financial west of the internet. And I know that sounds fun, you know, crazy. But like, you should be able to think about what is a global platform that powers everything from trading, custody, payments, identity, where will the assets and issuance look like? To not be gatekeepers, but to be able to enable innovation, right? Like AWS helped to enable a lot more innovation. They weren't gatekeeping along the way, you know, as opposed to what, you know, IBM used to do in the past. And another counter to that would be like, okay, well, Facebook isn't just a social network. They, in the beginning, at least, they were helping to enable what social networking could be

• 8:36Speaker 04

  with their social layer and identity, but they became much more closed ecosystem. And so, and then I would say it didn't come into fruition. So when I think about Kraken, isn't just an exchange. If we're just an exchange, we're going to be a closed system. We're continuing to build the same infrastructure we built for ourselves to make Kraken successful. So that you can have an open programmable financial system. I think that's really important where it ends up being user owned. There might be that's a hybrid over a period of time. But then when you can think about being globally accessible and natively digital, that changes the way in which you can build products. And so then you're not building a platform. You're able to build products on top of an infrastructure. And then you can get a different kind of network effect or extensibility or user development ecosystems, which we haven't seen before,

• 9:18Speaker 04

  where the barrier of entry to build a product should be small. It shouldn't be that large. And you could say, hey, the history repeats itself and these moats are created. But ideally, we can get to a place where it's less and less moats. And it's more about can you build products that are at an even level playing field for what's best for the customer at the end of the day? So you should be thinking about multi asset, multi rail. You should be thinking about not just owning the stack, but owning the experience for a customer, but still making it permissionless, which is I want to be able to move. I want to be able to be mobile. I want to be able to own my asset. The same way, which is probably what attracted you to Bitcoin or the Bitcoin paper, is that like it's synonymous to cash in terms of like you owning it, it's yours. No one can touch it.

• 10:03Speaker 04

  And so that you don't have to think about a trade off. You can think about, what can I do now with my collateral? And then what are the systems that I use? And of course, then you can move into, okay, well, what does traditional finance type products allow you to do that is trusted and compliant? And you're not thinking about trade offs for compliance. You're thinking about advantages.

• 10:25Anthony Pompliano?

  One of the things that I've heard people talk about that I think is pretty interesting is this like operating system for finance and having it be this like open protocol that anyone can kind of play with and plug into as you're describing here. We've seen this model, right? We've seen like the apples of the world or the androids and some of them are open than others. And there's all these kind of different ways to do it, but we've also seen with like the app stores. And so is that kind of what these financial institutions become is like they've created their own app and they're plugging it into a system. But it doesn't matter if I've got PayPal, Venmo, Kraken, or JP Morgan. I can go and I can send these assets between all these different products, whether I'm talking about currency, commodities, equities, or anything else.

• 11:05Speaker 04

  Look, I think the beauty of the early internet was that there were so many open protocols that could have been used. And so we ended up choosing a few and some were deemed illegal during the mid to late 90s, especially when it came to sending money over the internet. But I think your analogy is apt in that, look, why is Venmo and PayPal two separate systems? Like, why can't I use Venmo to send something to PayPal? You can't, even though they're owned by the same company today. Same thing with Cash App or any other protocol that's out there. And I would say like, the beauty of what you've been able to see with crypto is like you have across all these changes that you start thinking about interoperability and composability.

• 11:47Speaker 04

  There is no reason. So the best analogy for kind of what it could look like is think about email, which is like you're focused on one experience and that experience helps you win. Customer experience. And that allows you to be able to chat with [email protected]. And like origin at gmail.com or something like that, right? And we're allowed to be able to communicate with each other, even though we're on different platforms. And I think that protocol level composability is really important. So when you start thinking about the bigger ambition for financial assets is You know, even the vision of what we have at Kraken is like, okay, you've got a single platform to access every financial asset, but you don't have to be closed there and home there only, where you can only do things within what we do. That actually creates

• 12:32Speaker 04

  more friction. So when you think about crypto plus FX or treasuries or real world assets, all in one place on one exchange, it shouldn't be though, that like you cannot move it. And some, a lot of people say, well, you know, I can move fidelity to Vanguard. That's really hard. You can move from Morgan Stanley Bank. It's very hard. Like I've done it and it's painful. And so that friction shouldn't be there in the case. So the bigger ambition for anyone, including what we think about is how do you make access permissionless? That means moving beyond just like listing and custody, but you're able to move towards something creating more open, composable financial infrastructure, architecture where anyone can build, trade, issue settle without needing some sort of approval from a central authority. And central authority doesn't mean government. Central authority sometimes

• 13:16Speaker 04

  just means the bank, right? And I think that's what it means to being able to unify scale with decentralization.

• 13:23Anthony Pompliano?

  Talk a little bit about you guys going into US equities, because I think that there's a lot of people who realize like the traditional financial folks, of course, they want to have the crypto, you know, ecosystem come to them. So you see the Bitcoin ETF, you see different exchanges talking about maybe one day they could offer the crypto spot assets. We obviously have seen the futures and all that kind of stuff, you know, come out. But I don't think people really ever thought about or saw that it was going to be early where the crypto players were going to start adding the traditional assets and maybe beat the traditional players to kind of this merged world. I always use you guys as the example as a traditional crypto exchange now adding US equities, like game on it feels like. And so talk to me a little bit about what you guys are doing and kind of why you're choosing to start with US equities.

• 14:07Speaker 04

  So this goes back a little bit in history where, look, when people talk about being internet native, mobile native, crypto native, AI native, I think what's really important is like when you are first principles native with a new paradigm shift, you're starting to build what you think the future may look like. But a lot of what the future may look like is coming from what I call past architecture, past traditions and past assets. So given my background, I've spent so much time in fintech as an investor and built our own companies as well. And I started a bank in Mexico called Capital. One of the biggest issues with building those companies is because we're building on traditional infrastructure, it's actually harder and harder for us to be able to move and think about how to build

• 14:52Speaker 04

  new financial rails and financial technologies because you've got this debt of all of this investments that you've made in the past. And so you'll see people talk about that, actually, which is like, well, we do this. It's like, it's cheap to be able to move money around. Great. It's well, with for your own infrastructure. I think there was a quote by one of the founders of Air Wallace, where he said, like, I don't understand crypto. I don't understand why anyone would want to use it because like, my products and the infrastructure we built allows you to be able to move, you know, money instantaneously. Great. Well, if you use his fucking platform, right? So you got to pay the gatekeeper. The flip side of it is, okay, great. Well, we're a crypto native company. We built out the rails and the infrastructure. And so what does it mean to be able to go and get the traditional

• 15:36Speaker 04

  assets? Because they've already spent a lot of time building it. And, you know, rightfully so, like, we bought Ninja Trader. The the future of Ninja Trader is to be able to tokenize all of those contracts and to be able to token it, whatever the commodities are that people want to be able to trade and how to think about that collateral. So our first foray into it is that, like, look, we support tokens and we support a lot of assets on our exchange, but we need to be able to support more than just, you know, crypto native assets. We need to be able to figure out how to make crypto, sorry, traditional assets crypto native in themselves. And so we announced tokenized stocks when they called, we call them X stocks. And I think what we're really saying is that we're hinting at a world where

• 16:17Speaker 04

  you can trade any asset anytime from anywhere. And the real value isn't just faster access to equities. The value is collapsing the layers of friction. So what are those friction points? Custody, settlement, access, compliance, all abstracted into code, ideally. So for Kraken, it's a step forward in order to have a unified market structure where traditional and crypto assets can coexist, not just on one single platform, but across all the multiple platforms that are out there, right? When I say permissionless, you can use any other exchange, you can use any other service provider, you should be able to use any wallet. It doesn't have to sit with me, but we want to be able to help enable that. And so for the world, what does that mean? It's billions locked out of global markets traditionally. So you, that means they don't have that financial inclusion.

• 17:01Speaker 04

  And programmable ownership can be a reality. 24/7 liquidity in collateral can be a reality. And you have borderless access. So I think, you know, like, yes, you need to get better at smarter compliance. Yes, you need to have next generation user experience, just like other fintechs have. But I just think making sure that you have access and composability. You know, it's where you can start thinking about what X Docs or, you know, we recently bought Ninja Trader. How you plug that into DeFi and lending and structured products, et cetera. Like that becomes the real, in my opinion, Trojan horse for crypto native companies to start thinking about bringing traditional assets into a programmable finance world. Once they're on chain, we get to build more innovation on top of that, which is what is more exciting rather than thinking about the bridge that we're trying to build now.

• 17:46Anthony Pompliano?

  How do you think about in this like open permissionless system? I think the critics with the ownership, like, oh, my God, they're all going to trade. No one's going to have any rules. There's not going to be any regulation. How are we going to stop the bad actors? Obviously, I think there's a whole critique of, you know, does things like KYC actually stop the bad actors and all that? But just put that aside for a second. Like, how do you see what I would put as like innovative technology interacting with or intersecting with? Kind of an, you know, one of the most regulated industries in the world in terms of traditional finance?

• 18:15Speaker 04

  Look, the, when regulations were passed for any of these, they usually were for good, good reason. And then what happens is design between implementation and some failing somewhere. So when you, when you think about, okay, well, does KYC AML work? Yes, it works for a very specific set of industries of like, you know, movement of money, but it doesn't work for cash. It still doesn't work for, you know, different nefarious activities, even in traditional banking. So I'll give you an example. You have someone like HSBC or any of the larger banks and institutions that they work with someone. When, when they find out that they've done something wrong, it's usually that they've been doing something wrong for two years. Right. And you're talking about billions and billions of dollars being moved.

• 18:55Speaker 04

  And, and then now they have to go through an effort of reporting it, then doing more investigation and obviously paying a fine eventually. If you take a look at the total, you know, amount of fines that the large institutions pay because they took so long to figure it out. I mean, it's in the hundreds of billions worldwide. It's, it's large. I can't, I can't even fathom what it is. I used to track it, but I'd stopped caring because it's just too large. What happens in crypto? One, you can start thinking about smarter compliance rather than an interpretation of compliance or manual compliance. So there's no reason why KYC and AML cannot move on chain and you cannot, why you cannot enforce the rules programmatically, right? So you make it permissionless, but in order to redeem, in order to use, in order to use

• 19:37Speaker 04

  in collateral for different products that are out there, you can enforce these programmatically and it actually makes it easier, not harder. So imagine a world where you let in more people and then you can target rather than say like, I'm just gonna not let everyone participate in it. You're talking about billions of people left on the sidelines worldwide, which is what crypto is now supposed to help enable because you're interpreting it manually, like, you know, post-World War II where you need like an army of a thousand people to figure it out. You don't need to, you know, it's getting easier and easier to do this every single day. There's no reason why we need to, you know, go back in time and say like, well, this is the way, the way in which the structure needs to be created.

• 20:15Anthony Pompliano?

  And when you see these assets that are being tokenized, just like infrastructure and then there's the players, how do you see the issuers changing over time? Like, obviously, somebody's building a company, maybe they want a token and they want a publicly traded stock, or maybe that's just one thing, but like the issuer role, I think a lot of people don't really talk about because they talk about like the technology provider on the crypto side, talk about the banking or, you know, the exchange or whatever, the traditional world, but the issuer in a weird way has choice. And that choice should actually lead to competition between these two different systems to like, who gets the issuer? It's like the next great company, do they choose to tokenize themselves or go through the traditional public markets? I think right now the default is public markets, but like, maybe that changes over time.

• 20:59Speaker 04

  I think what's really fascinating is when you reduce the friction across the board, you're giving people ultimately more choice. And then when you have more choice, there's more innovation and products that are built on behalf of that. So who's the client at the end of the day? Let's call it, you know, a company in Europe. Now, how do they get access to liquidity or global liquidity or access to capital? They gotta go to their local exchange. Well, can you name me which exchange that they're gonna go to in Europe?

• 21:30Speaker 04

  You can't anymore because it's getting smaller and smaller. So they want access to global liquidity. And so now everyone kind of looks like, looks to the US markets for global liquidity. Now, I think that's, that can still be okay, which is okay, great. Now you've got a couple of exchanges that are thinking about global liquidity, but they all interact with each other too. So it ends up not being zero sum. And so as an issuer, you can decide how you want to think about your on-chain strategies, maybe a better way to put it, which is, do you want to be an issuer yourself? Do you want to work with someone else? Do you want access to a very specific set of global liquidity products? Is it a treasury? Is that credit? Is that funds focused on DeFi and TradFi? Is it like, I just want to issue a token that is my equity?

• 22:12Speaker 04

  And do I want to have access to, for global liquidity to be able to invest in my, you know, traditional security? I think where people kind of get mixed up is that tokenization isn't about wrapping. It's about rewiring what the backend of global finance is going to look like. Now, is that going to happen today? It's going to happen tomorrow. It's going to happen like 10 years later. That's hard to predict, but it's already starting to make moves in that direction. So I just think it becomes more and more natural where you're giving choice to the issuer. And now the question ends up being, who is the issuer? Is it the company? Is it the, or is it like the broker? Or is it the exchange? Like, how is that infrastructure going to come into place?

• 22:51Speaker 04

  And so when you have this mishmash now between what I call programmable on-chain structure and traditional private contracts, that's where more and more innovation is going to happen, right? So we're already pushing this to try to figure out what does that look like? But you know, it's going to be different in every market. And it's why, you know, I think when you see the macro realignment, then you're going to see what are the types of products that you can have in there. And, and look, the fact that Bitcoin and Ethereum are basically the natural liquidity pipeline for everyone to come in. And then the stable coins is the next piece of those global liquidity rails. We're just going to be able to be much more unified, in my opinion, like as in the financial layer and like, and the connective tissue.

• 23:34Speaker 04

  And that's, and I think that's where crypto is best served versus where we are today in a fragmented world with all of these middlemen and friction points across the board. I'm not saying any of these things are bad. It's just, it's kind of where we are today.

• 23:46Anthony Pompliano?

  I think that there's a very good lesson in Circle and in Tether. It seems like Tether's strategy is to go to the emerging markets and they're like, hey, the US already has dollars and we're going to go try to onboard a bunch of other people. Circle is saying, hey, we're going to be a regulated US-based stablecoin. We're going to go get distribution through the coinbases and other exchanges in the world. And we want to bring this digital dollar to kind of regulated finance, et cetera. I don't think either strategy is right or wrong. I think they're just very different strategies. When I think of things like tokenized stocks and maybe other things of a degree of sophistication, it feels like the demand is probably already most existent inside the United States or kind of traditional Western capital markets.

• 24:29Anthony Pompliano?

  But to your point you mentioned earlier, there's billions of people who it's outside of the system and probably would love to get access. How do you think about, you know, which market to attack? Or like, what is the sequence? Because you probably can't serve everybody all at once because there are kind of different users with different product needs.

• 24:45Anthony Pompliano?

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• 26:51Speaker 05

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• 27:52Speaker 04

  Yeah, so there's multiple questions in that, so I'll try to tackle it one by one. Look, I think maybe a good way to put it is the world is merging multi-asset and multi-collateral based markets. And so we're watching the conversion of traditional finance and crypto in real time. We just talked about it. And so you have BTC, ETH, stablecoins, tokenized treasuries, and equities. They all can and have been serving collateral across a set of integrated financial systems. And so what do we really care about at the end of the day? We care about market stability, we care about price, we care about utility, what assets can you borrow against, how do you settle with, how do you embed, frankly, into smart contracts? That's what we think about in crypto. And then what's the shift

• 28:36Speaker 04

  of store of value, which is what we've been used to, to infrastructure of value? And I think that ends up being probably more important around what we want to be able to build. I think Circle and Tether and all these other guys play a very specific piece of it, right? Which is, okay, well, what does that plumbing allow you to do? Is that a wrapper or not? And obviously, you know, there's always been the great debates around algorithmic versus, you know, back, not being backed one to one, depending on what that is. I think you go back to the basics. What is tokenization is the infrastructure, again, not a wrapper, it's a re-architecture of financial plumbing, removes friction, again, custody, settlement, compliance, issuance. That's kind of what striped it for payments, right? And I think that's what we can do for worldwide capital markets. Real innovation isn't the tokens,

• 29:17Speaker 04

  it's going to be the rails that continue to run on. So like, think instant settlement, again, 24/7, pramable ownership, global access, this becomes like the default. This isn't the default in Argentina, this isn't the default in Brazil, it isn't the default in most of Latin America, it's not the default in India, it's not the default in most of the emerging markets, or even the, you know, markets that we're just starting to think of. Like, in Africa, when you think about global capital markets, you're only thinking about a couple places. You're thinking about Nigeria, Kenya, and South Africa. And a couple of places I'm probably missing. That's there's still a billion people that are being not attributed. And so what do they want access to? Again, it goes back to what I just mentioned is that tokenization isn't a wrapper.

• 30:02Speaker 04

  It's like a re-architecture of the financial plumbing. And so what do they want access to? So they want access to clear assets where they can have savings and yield. So going back to your question around Circle, Circle's a solid company, right? What they're what they've been building? I kind of think of it as a small domain and mid-market enterprise. And Circle within the US had been focused on the upper stack of mid-market and enterprise, which is it's important for those set of folks that want to think about bridging the gap between what they do in traditional finance, think Franklin Templeton, think BlackRock, those folks, which is very different from what I'd consider like, you know, like a Stripe or a Tether or a Visa, right? Like really early on, which is like, okay, small to medium mid-market.

• 30:43Speaker 04

  And how do you grow bottoms up at a and think about how to realize performance for who their customers might be? I think the thing that I found most fascinating, because I travel the world a lot, is like, look, you go to Latin America and you go to their version of the farmer's market. It's not as cool as it is here in like the Bay Area. But when you're going to where people are buying things daily, they are priced in USDT. Right? They're not priced in their local currency. They're priced in USDT and USDT is buying US Treasuries. The natural form of what you're going to do, if you're buying, selling, storing and saving in USDT is thinking about investing in USDT. And the most natural things you're going to do is, okay, where's global liquidity?

• 31:25Speaker 04

  And what are the traditional assets or safe assets or compounding assets that you want to invest into? And that and I think that's what's really great is like, those are most naturally companies and products and innovation that's happening in the United States. So around the Circle IPO, like it's great. It's really early, solid company, solid traction. I think USDC and the likes of the stablecoins around that type of IPO narrative and optionality are really important.

• 31:51Anthony Pompliano?

  When you think about the public markets, obviously, they've been very well received there. Stock price has done incredibly well. I got to imagine that makes a bunch of other crypto companies say like, well, what if I get into the public market? Do you think that we'll see kind of this IPO backlog lead to an explosion that everyone is talking about? Or do you think that's overhyped and actually there's not as many companies trying to get into the public market as people believe?

• 32:13Speaker 04

  If you take a look at the dot com era, there's, there's market cyclicality. You take a look at the dot com era and what happened? You had, you know, products that didn't have revenue, but had a promise of possible revenue fly in the public markets, right? And people were investing behind it. I think you see these narratives all the time, you know, what I call the abundance of the scarcity of the story and the abundance of scarcity of where we are in the capital markets. I think the public markets today, and you can see it, like you can just see the capital flows, is they are investing into anything and everything that has a crypto narrative around it, which I think actually could be quite dangerous, right? So ETFs, IPOs.

• 32:55Speaker 04

  I think part of it is that there's a story around legitimacy and liquidity and there's a new investor base. But at the same time, there's, you know, and actually, and it's good because they are pressuring the system on the crypto side for better disclosure, clear regulation, more robust infrastructure. But at a certain point, I think crypto has to stop being a side bet in terms of how you think about the global asset allocation model. And it goes back into what I think about, you know, intrinsic value of what's actually happening. So how do you scrutinize? What's the maturity? What's the blending of your asset classes between what I'd say, actually, it shouldn't be a blend. It should be crypto native and then all the assets underneath crypto native.

• 33:35Speaker 04

  And so I think the public markets are good for just producing more and more of that narrative. But I do think I get a little worried in that you are in this place where everything is being valued from an options value perspective versus intrinsic value. And I think you'll always have an equilibrium, just like you've had in the past for certain types of assets. And so when I think about what we build and how we're thinking about the public markets, public markets are really more about, you know, bringing accountability more than anything else. And eventually that'll come more and more into these crypto companies that are not just, hey, I want to be a crypto treasury and, you know, for BTC, ETH, Solana, et cetera, but more about like, how do you build value rather than just holding value?

• 34:16Anthony Pompliano?

  When you think about the Kraken business today, my take is that you have some retail, some institutions and that business is, has evolved over time. When I look at the public markets, I see retail institutions acting very differently. It's like every dip, retail's buying hard. Institutions have been sitting on the line with much less equity exposure in the recovery this year than maybe they otherwise would have had, but retail has been a very big participant there. We can see the data points of like retail's ownership of stocks is, you know, at all time highs, et cetera. How do you all think about retail versus institutions? And like, do you focus on one or the other? Do you try to serve both? Or is there, you know, any delineation between those groups, given

• 34:58Anthony Pompliano?

  the business you guys are running? Kind of where you think this financial world is going?

• 35:03Speaker 04

  So the, I mean, the history of Kraken was that Ton and Jesse were the two co-founders and they actually came from gaming. And if you, and if you go back in time around gaming, and they also built it off of the cusp of the Mt. Gox event that had happened around it being hacked, right? And so their premise was where can you build a place that's institutional grade, secure, with deep liquidity, regulatory resilience, which I think is really important, multi-asset class? Like this is how they were thinking right off the bat. And then leverage crypto rails to be able to bring it to everyone. And so the, we basically built an institutional grade engine exchange for our clients. Now, who are those clients

• 35:47Speaker 04

  that care about who we serve with depth and trust? It's professional traders. And so if you go back 20 years, actually even 30 years now, professional traders was just starting out, right? And it's one of the reasons why we bought Ninja Trader as well is that in the mid 2000s, you had people being, getting access, obviously with the advent of the internet, to their own trading view, to be able to Take a look at how they wanted to trade their own assets and not having to rely on the broker or the middleman. Like, we've seen this theme happen again and again and again, you know, every five or 10 years is a new generation of the types of products you can have. So there were these gateways and these platform institutions.

• 36:27Speaker 04

  I think we think of ourselves as being able to help enable more and more of that independent thinking, which is like, what does a professional trader do? What do they care about? Well, they care about all of the assets, all the ways in which they want to trade, store, save and yield, but it's at a different level, right? So if you think about some of the exchanges that are there today, you've been here in the US, I think they've always been much, even a fintech company that

• 36:55Speaker 04

  gives you the option to buy crypto, they're a consumer gateway. But they all have to rely on different third-party folks, institutional-grade engines like us in some cases, that serve both of that depth and trust. And so I think a way to, I think the way to think about what we've built is we've built a set of microservices to be able to support our core business today. And we're building a new set of core services on top of the microservices that we've had in the past. And so when I, when I talk about what's happening in DeFi, what is the hybridization? Now, how do we make sure that we have a hybridization trust platform? That's really around what we're able to build because we first focused on our professional trading class and they're typically our counterparties to anything that we build.

• 37:39Speaker 04

  So when we think about payments, when we think about

• 37:43Speaker 04

  DeFi products, when we think about the next set of institutional-grade or retail products that we're going to build, we're going to be building it off of the back of our foundation that we have. And I think that's what's really important is that we don't sit on purely retail. We don't sit purely on institutional. We sit right in the middle, which is professional traders that want to access the retail-style products, but they also want access to institutional-style products. And that's why we're able to build our, you know, our multi-asset access products at a pretty fast clip, right? So when we think about the vertical ownership for our professional traders, we do think custody, settlement, trading, staking, indexing, all in one stack on behalf of them. And, and then from there, whatever else they want to do to explore what DeFi might there.

• 38:25Speaker 04

  Provide them, but we want to be able to make sure that we can build along the way with them as they're evolving as well, especially in the crypto ecosystem.

• 38:33Anthony Pompliano?

  My last question for you is around nation state participation. Obviously, we've seen El Salvador, Bhutan, you know, many other countries participate, but usually they're pretty small kind of beneficiaries of the innovator's dilemma. Now we have this strategic Bitcoin reserve. You see many other countries that are either they're sovereign wealth funds or their country themselves saying, we're going to set up a strategic reserve. We're going to buy the Bitcoin ETFs. We're going to participate in mining, you know, some of them probably are going to end up doing staking and, you know, many other various activities. How do you see that cohort playing into a lot of the stuff that we've talked about here? You know, the US doesn't hold US equities on behalf of the citizens or anything like that, but it does feel like there's a significant shift now where like the countries are here and that should change things in the market pretty drastically.

• 39:20Speaker 04

  Look, I think in order, so I think the way to sort of think about the themes has been, A, what's happening worldwide? And then take a step back and, and say, okay, what's the regulatory clarity you need for that type of what I call market stability? So what did we have in the US and the EU? We had FIT21, which is a variant of what could become into law in the future when we're thinking about commodities versus securities, the agency roles between the SEC and the CFTC. And so we've labeled those today as market structure and the stablecoin bill. In Europe, they had the MICO rollout, right? And so it set a baseline, in my opinion, for others to follow, rather than what you typically see the US and then for others to follow the US. Then on top

• 40:01Speaker 04

  of that, I'd actually say that the ETF approvals were much more a force because you were seeing a baseline being set outside the United States, right? So which, as you'd mentioned, it actually just further institutionalizes the space even more so that they had, right? So that, so I think that clarity worldwide over a period of time then unlocks more innovation than the builders get ready and now there's a green light for them to build, not just here in the United States, but all over the world. But I think what's more important to your question is that tokenization goes real, right? So on-chain treasuries, credit funds, used in DeFi and TradFi. You're seeing BlackRock enter, you're seeing Franklin Templeton enter. You're now seeing JP Morgan starting to think about scaling up, right? Which is like unfathomable two years ago.

• 40:45Speaker 04

  And they're all talking about programmable compliance and new financial products and how they're able to bridge that gap. I mentioned it before, right? Like tokenization isn't just going to be about wrapping. It's going to be about how do you rewire this with the traditional guys as well? You're seeing a large amount of geopolitical realignment. I think this is really key, right? So US elections, central bank shifts, emerging market instability. Stable coins are becoming more and more global liquidity rails, not just here in the United States and for the United States, but all over the world. Bitcoin has become more and more of a strength as a neutral reserve inflation hedge. You've talked about this a lot, right? Like, and I'm sure people thought you were crazy five years ago when you're talking about it now. Now it becomes much more commonplace. And so again, in this fragmentation, you're seeing this connective tissue happening.

• 41:29Speaker 04

  And I think a lot of these countries are recognizing it at a faster and faster pace. So you said small nation states, but I also think about emerging markets. Like I spent a lot of time in India and in the Southeast Asia corridor. They know people are using crypto and they know what crypto will mean moving forward. But the nations, I would say the nation state participation is still pretty early and I would still say it's skeptical. It's kind of how people just think about electricity as nefarious. Like, why would you want to stay up at, you know, 11 o'clock and you must be doing something wrong? I do think that narrative still exists for crypto and it's probably, you know, it's up to us and folks like us and companies to continually talk about what this actually means for multi-product, multi-asset, multi-collateral. But strategic Bitcoin reserve is like the notion that people are talking about today.

• 42:14Speaker 04

  And I think they're using, and I don't know if this is right or wrong, but they're using it in the same way they think about oil reserves in the past, you know, over the last 100 years. And so what are the oil reserves for digital economies? So as you mentioned, El Salvador has leaned in. I do also think adversarial states, and I don't know if this is good and bad. They're all experimenting with crypto rails, right? Where they can do a wrapper around sanctions and make sure that their economies can still be, they can weather the storm, depending on what it looks like between, you know, different nation states against each other. We all know this dipping into crypto native VC and infrastructure quietly. I don't think they're very loud about it, but I think the big move is going to continually be when you have merged major economies. Start using BTC as a macro hedge, not just gold.

• 42:58Speaker 04

  I think the more and more that we see that it becomes more commonplace. Central blanks exploring or holding tokenized ETFs or tokenized FX as a part of their reserve diversification. I've starting to hear people talk about it. I haven't seen it really happen. I think crypto is now also becoming a part of the national security conversation and energy strategy, which is mining surplus energy, et cetera. So I think like, look, I could go on and on about this, but the, but the fact is that AI and crypto are the same conversation in the same room. AI is more sexy. Crypto is more like, okay, well, that's boring. But the, I always, I always go back to if the major economies are starting to use BTC as a macro hedge and then not just gold.

• 43:39Speaker 04

  That means we've progressed way further than we ever thought we were going to have progressed in the last 10 years. And that happened all over the last two years.

• 43:49Speaker 04

  So BTC as a geopolitical asset, I think is really important. Why censorship resistant, borderless, neutral countries that have inflation risk or political instability. They're going to probably think about it. It might actually create more stability for their countries because it's a hedge. And then for the US, it's an edge, right? And they've already embraced it. And, and I think that's the piece that's going to be really fascinating to watch in terms of, is it a fight? Is it an enablement? Is it a collaboration? And so my point of view to the team and what we build is like, look, we've always seen crypto as a long game. Everyone is entering it, including the nation states and everything we've built for opens up, you know, the, for an average individual.

• 44:31Speaker 04

  It opens up for a small to medium business, opens up for a sovereign nation. It opens up all of those folks to be able to focus on what it means to be permissionless, programmable and, and more importantly interoperable.

• 44:43Anthony Pompliano?

  I think it just feels like we now have entered the second phase of the rise of all this technology. So it's super exciting. Where can we send people to find you or learn more about Kraken if they want to start using the product?

• 44:56Speaker 04

  Well, Kraken, just go to kraken.com. That's an easy one. In any country that you're you're coming from, it takes to the local page. For me, Twitter, LinkedIn, I think it's just at origin sat. And it's easy to find me.

• 45:11Anthony Pompliano?

  Amazing. Well, thank you so much for taking the time to do this. As always, impressed by everything you guys are doing and wish you the best of luck and we'll definitely do it again in the future.

• 45:19Speaker 04

  Awesome. Thanks for having me.