Jesse Powell, Co-Founder & CEO of Kraken: How to Maintain your Principles in Crypto

Jesse Powell is the Co-Founder and CEO of Kraken Exchange. In this conversation, Jesse and Anthony Pompliano discuss the founding story of Kraken, what it means to build a company based on principles and ethos, the current regulatory environment, and why the work being done in Wyoming is compelling. -----If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworksgroup.io

• 0:01Speaker 00

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 0:13Speaker 00

  Jesse Powell is the co-founder and CEO of Kraken Exchange. In this conversation, we discuss the founding story of Kraken, what it means to build a company based on principles and ethos, the current regulatory environment, and why the work being done in Wyoming is compelling. I really enjoyed this conversation, and I hope you do as well.

• 0:33Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinions. This podcast is for informational purposes only.

• 0:59Speaker 00

  Alright guys, bang, bang. Super excited to have Jesse here with us. He is one of the most successful entrepreneurs in the cryptocurrency industry and been around for a long time. So I appreciate you taking time out of your day to come on and do this, Jesse.

• 1:14Speaker 02

  Absolutely. Thanks for having me.

• 1:16Speaker 00

  For sure. You've been around a long time, and I would say a large majority of the people who are here today in the cryptocurrency industry paying attention have not been around as long as you. So maybe you can give us a background on yourself and how you got into crypto, and then we can start talking about some of those early days before we get to Kraken and kind of what's going on today.

• 1:37Speaker 02

  Sure. Yeah, so I've been in the space since early 2011. Prior to getting into crypto, I had a company selling virtual items and currencies for online games like World of Warcraft, gold, Diablo swords, RuneScape gold, MapleStory. You know, we did like 20 different games. And, you know, so I've sort of been in one way or another in the virtual goods, virtual currency space for

• 2:03Speaker 02

  Geez, almost 20 years now. So what attracted me to Bitcoin, I just happened to randomly read about it. What attracted me to it was that it solved a bunch of problems that we were having in that business, in the virtual goods business, which was mostly related to credit cards and access to credit cards and international payments. So in the digital goods business,

• 2:35Speaker 02

  you have all kinds of problems with fraud and you obviously have customers all over the world. So for us Bitcoin solved the problem of chargebacks. Obviously, you don't have chargebacks in Bitcoin. That was a huge problem with accepting credit cards and PayPal that people would regularly attempt to charge back or they'd be using stolen credit cards to purchase virtual goods. And we never had a proof of delivery, you know, like we never had a receipt with a signature from the post office that said, somebody definitely received something to the billing address on their credit card. So that was solved by Bitcoin. We had tons of items that we were selling that were like a dollar that we would pay 35 cents to, to the processor.

• 3:19Speaker 02

  So, you know, it was eating up our margins on those items. We had a lot of clients that were international who didn't have credit cards or PayPal didn't service to country. We had a lot of kids in the United States. You know, when people think about the unbanked,

• 3:37Speaker 02

  they're usually thinking about like rural India or Africa, but you know, like most of the people under the age of 18 in the United States are unbanked. And that was a big segment of our clients who, you know, they'd have to borrow their parents' credit card or we'd have kids like mailing us an envelope full of cash and like pennies and quarters and stuff. And by the time it'd get to us, like half the money would be gone because it had fallen out of the envelope. And then we had suppliers who were actually selling us the items in China, in Eastern Europe, who...

• 4:10Speaker 02

  Needed their local currency and in China specifically, each person, I'm not sure if this is still the case today, but at the time, could only convert 50,000 US dollars into Chinese yuan every year. And we were buying at a minimum, like a hundred thousand dollars a week from China. So that meant every week, we needed two new people to do this trade in China. So as you can imagine, there are just all kinds of like logistical issues and risks that that introduced. And so Bitcoin like solved all of these issues that we were having.

• 4:48Speaker 02

  And, you know, we already knew that people were valuing virtual currency because we were in this business with the games. And, you know, World of Warcraft gold was actually worth something. Kids were using World of Warcraft gold at school to, you know, to buy brownies from each other or whatever, you know, to do like real life trades. And there've been other attempts at virtual currencies, you know, independent ones before, like e-gold, for example, but obviously that was shut down because it was centralized. And, you know, I think this is like the kind of the same reason why World of Warcraft gold would not ever be

• 5:32Speaker 02

  a major global currency. And that's mostly because the World of Warcraft developers Blizzard controls the accounts and they're the ultimate authority. And they can just ban your account for any reason at any time and you have no recourse. So Bitcoin being this completely independent thing, completely decentralized, not being controlled by anybody,

• 5:56Speaker 02

  to me, gave it a shot at being a real thing. And so that was super interesting, just from all the business benefits of it. But then all of the philosophical and social implications of this global currency that is not controlled by any government, that was also extremely appealing to me.

• 6:17Speaker 02

  And so I was just trading crypto in the early days and I did some mining.

• 6:26Speaker 02

  A friend of mine from from the high school days of playing Magic the Gathering Roger Veer also happened to be into Bitcoin and messaged me just like two weeks after I found out about it and we kind of just fueled each other in getting further down the rabbit hole with Bitcoin.

• 6:49Speaker 02

  And then like the the Mt. Gox situation happened in June of 2011, like the first public hack and we were both in Japan to help out with that situation and that's kind of I came away from that kind of thing. Okay, there there needs to be more than one exchange and somebody's got to do this the right way.

• 7:06Speaker 00

  So I want to go back real quick to to two things you said. One is you're obviously already engaged in digital goods or digital assets.

• 7:20Speaker 00

  Out of the things that you saw other than Bitcoin, what were the most popular items? These were all like skins and weaponry, etc. for games? Or was there other types of assets that people were buying and selling at the time?

• 7:36Speaker 02

  Yeah, back then it wasn't really skins like skins. Skins came to be more popular later on, but back then it was just like items, like functional items, like just very powerful equipment, you know, like the best sort in the game or whatever. In some games you could you could buy land. So like in Ultima Online or you could have like a castle that took up like a finite piece of land and you could sell that for a few thousand dollars potentially. So it was like rare items, powerful items, limited edition kind of stuff.

• 8:13Speaker 00

  Got it. And then the other thing you mentioned was the first Mt. Gox incident. I think when people hear the terminology or the name Mt. Gox today, they think of the hack in 2014 that that was kind of the downfall of the exchange. But you were talking about an event that happened in 2011. Maybe describe, you know, what occurred then and what the impact was on the overall market?

• 8:38Speaker 02

  Yeah, so you know, I don't.

• 8:42Speaker 02

  Know the whole truth, probably, but what it seems like happened, the story that I know was that somebody basically hacked like an admin account on Mt. Gox and this admin account had the ability to arbitrarily assign balances to people. And it assigned a user a balance of like a zillion Bitcoin. And or a zillion dollars and that user basically like,

• 9:14Speaker 02

  I guess it was like a zillion Bitcoin because they dumped it, they dumped the Bitcoin and drove the price to like a penny per coin or something like that. And then there were these withdrawal limits based on like the dollar value of Bitcoin. So it was like you could only withdraw like a thousand dollars a day worth of Bitcoin or something, but because the price of Bitcoin was like a penny, you could withdraw, you know, whatever, like 100,000 Bitcoin. So

• 9:44Speaker 02

  the hacker like did that and apparently was able to steal, at least according to Mark, like 4,000 Bitcoin, which at the time was like, not that big of a deal, you know, like should have been easily covered by by the exchange's balance. You know, this is probably like, I don't remember exactly, it was probably like 40, $40,000 or something at the time, you know, so no one was thinking like this is, this is the end of Gox, you know, this is just like, okay, like, go to your couch and like dig this change out to cover this. So

• 10:17Speaker 02

  so Roger Veer was out there, he was actually living in Japan at the time, like just a few blocks away from the Gox office. So he showed up there and basically found it like, there were like two people working in the whole company and one person had just started the day before. So I mean, basically it was like a one man operation with Mark and Roger called me up and asked me if I can come out. And helped them out. And I'm like, hell yeah. Fortunately, the the virtual goods business by this time was was pretty much running itself. I mean, I'd been doing it for like 10 years. So it wasn't needed day to day. So I was on the next plane to Tokyo and spent about a week and a half out

• 11:00Speaker 02

  there, just working with them on all the operational stuff, trying to hire people. I wrote the press release that came out, just whatever I could do to be of service while Mark focused on the tech and getting the site back online. And we just came away from that thinking that the whole ecosystem had had shut down during this week and a half when when Gox was offline and nobody knew what the price of Bitcoin was. Merchants couldn't accept Bitcoin anymore because they couldn't convert it to fiat. There were just all these issues caused by the lack of exchange availability and price discovery during this time. So, you know, I thought,

• 11:44Speaker 02

  I don't know if if Gox is going to be the one to to really bring crypto to the mainstream. And so I talked to our old CTO who, he's now my co-founder and CTO from the virtual goods business about the possibility of starting an exchange. And we'd been doing some mining together and some other things. And he was on board with the idea. And and that's when we got started on Kraken.

• 12:11Speaker 00

  Got it. And so when you guys start Kraken, I know today that when people think of the exchange, it's very kind of ethos and principles driven. I'm assuming if that is where you guys are today, you know, years later, that's where you started. Maybe talk a little bit about those ethos and principles, and kind of why you chose to go down that path, when maybe some of the other paths might have have led to greater adoption faster, or maybe even more profitability.

• 12:46Speaker 02

  Yeah, well, you know, we, we both walked away from from a very lucrative business to do this. And we could have just kept on doing that. We did this because we were passionate about it. And we felt like it was really something good that we could do for the world to to help bring crypto into the mainstream and make it more available to people. And to kind of bridge that gap between the the legacy system and and the new world that was coming.

• 13:22Speaker 02

  So, you know, I think today still we carry that ethos with us. It's still what keeps us motivated. We we think about these things, you know, with every decision that we make. And it's why you haven't seen us list a ton of garbage coins. You know, we're not interested in selling out our users just to to make a quick buck. It's why you've seen us move at a slower pace than than some others. You know, we've been engaged with the regulators all along the way. We're really trying to build a system that can serve most people, that can serve

• 14:04Speaker 02

  the mainstream and and really make crypto less scary and and be more appealing to more people. And, you know, I think the way to do that, there are obviously many varying approaches out there in the space and and all are working to different degrees or or serving different niches. But, um, you know, I think somebody really has to engage with the regulator and be that that bridge from from the old system onto the new system.

• 14:36Speaker 02

  And we're working on that. You know, we've we've got all these banking relationships that are a result of that. And, you know, you have to help people get from fiat into crypto. And once they're in crypto, they can go anywhere and do whatever they want. But, you know, that's the hard part, really, is is that first step of getting from fiat to crypto. And that takes a tremendous amount of work and really doing things the right way. And, um, you know, it's not just about engaging with the regulator. It's also just about like security. You know, we've we occasionally get beaten up for having

• 15:11Speaker 02

  inferior UX or or.

• 15:15Speaker 02

  Annoying security features or whatever, you know, but it's

• 15:20Speaker 02

  it's all part of building this robust service that is built to last and can make people feel comfortable. You know, people are coming from a system where the banks have existed forever. Things that are regular problems in crypto are just table stakes in the traditional banking world. You know, when you sign up for a banking account, you don't even think about like, okay, what if this bank blows up and loses all my money? You know, like, that's not something you ask yourself when you're opening an account with Bank of America.

• 15:54Speaker 02

  You know, but it is something

• 15:57Speaker 02

  that is still a question for most crypto exchanges, you know, is like, okay, like if I put my money here, is it going to be safe? Is it going to blow up? You know, I've heard about like, there's like a new exchange getting hacked every month. So you know, we want to make people feel more comfortable and

• 16:16Speaker 02

  I think that's also part of, part of the long-term plan really is to build

• 16:24Speaker 02

  just to make it easier for people all around to get in, you know, you have less excuses to not get in.

• 16:31Speaker 02

  And I think that the benefits that crypto will bring to the world are so huge, you know, it's, it's really what keeps us going in the face of all of this like,

• 16:43Speaker 02

  sorry for my language bullshit that we have to deal with in

• 16:48Speaker 02

  in serving clients, you know, in especially in countries like the United States where the regulatory burden is very high.

• 16:53Speaker 00

  And so part of, you know, I wrote, maybe this is, I don't know, six months ago, when you guys released your transparency report, right, which I think is, you know, is pretty, pretty cool that you guys do. And in that report, there's all kinds of things that you share, but one of them is around this regulatory burden, right, and kind of how many subpoenas or information requests that you guys are getting from regulators? And just kind of how that puts a strain on the business, on your internal resources, and how it can be a distraction. And so, you know, you and I have talked previously about You are not in the camp of like, I don't want to follow the rules, right?

• 17:38Speaker 00

  There's a lot of people in the industry who, who, or maybe not a lot, it's unfair, but just there's a good amount of people in the industry who they have that bent where they are not going to follow the rules. Whereas with you, you're saying, look, I want to follow the rules. It's just really hard to do that. It's really expensive. It's really time consuming. You know, maybe there is a better way. Can you talk a little bit about how you think of that trade off between, you know, doing the right thing, even though it's a little bit harder and more expensive?

• 18:06Speaker 02

  Yeah, so, you know, I guess it's, it's yet to be seen whether this strategy is gonna, gonna be profitable long term, but we, you know, we, we don't really see it as an option for us, you know? If our, if our goal was to just maximize profits, you know, we could probably lay off half the company and stop serving the US and just go nuts with the rest of the world and, you know, list like a million shit coins like every week. But, you know, the goal really is to, to promote cryptocurrency and to bring more people

• 18:44Speaker 02

  into cryptocurrency and to, and to be that example for the industry, you know, for regulators and law enforcement to feel more comfortable, like, okay, we don't need to, to take a heavy handed approach to this because there are good actors here that are, are trying to do the right thing and they're helping us catch bad guys and, you know, we just don't need to, to like make any rash decisions now. So I think it is, it's important for somebody to be engaged with the regulator and, you know, we're, we're in a good position to do that. You know, that was our approach from the beginning, that to build things in, in that

• 19:27Speaker 02

  way and, and to be engaged with them to, to work on self regulatory organizations, just to sort of be. An example to the rest of the community and not everyone has to follow our path. And I know that, you know, it doesn't make sense for everyone to, to try to serve the United States market or to try to like offer regulated products, but you know, I think that's the way that you get to the mainstream.

• 19:53Speaker 02

  So, you know, for us, we have tried to have a balanced approach to regulation. I think, you know, you saw us leave New York when the bit license was introduced and, you know, I think the industry still feels like that is a disaster. The bit license is a disaster and it's a shame for people, the people of New York, because they've missed out on a lot of great opportunities and their, their choices are extremely limited now. So, you know, it's hard, it's hard to know where does something become, where, where are you protecting consumers and where are you placing sanctions on consumers? Because the people in New York right now feel like they have sanction, sanctions placed on them.

• 20:38Speaker 02

  They don't feel so much like they're protected, you know, and, and so they're having to spend the extra money to actually go set up entities outside of New York to, to exempt themselves from that protection of New York. So, um, you know, we're, we're very engaged with law enforcement. We, we answer a tremendous number of subpoenas from all over the world. We are actively engaged with, with regulators all over the world and helping to, helping them to understand how crypto works, helping them to shape new regulation.

• 21:15Speaker 02

  So that is a tremendous amount of work and it's just something that somebody has to do if we're going to keep moving things along. And, you know, unfortunately, I don't think the regulators have moved as fast as we would have hoped, you know, especially in the United States. Things have been very slow and I think that that has, that uncertainty, well, it's better to have some uncertainty than to have something really terrible like the bit license, but that uncertainty, I think has helped back the industry quite a bit from, from developing. And you see a lot of, a lot of the bigger traditional financial services firms are just waiting in the sidelines, I think, for, for that clarity to, to feel like they can jump in.

• 21:56Speaker 00

  Got it. And so you mentioned New York, the bit license, and kind of regulatory certainty. And I know one area that you've specifically taken an interest in is Wyoming. And it seems like they have quite a number of initiatives underway. Obviously, folks like Caitlin Long and others are really kind of pushing the pace of innovation there on the regulatory front. Maybe talk a little bit about just kind of, you know, what you find interesting there. What, if anything, you guys are doing there and more of your thoughts around Wyoming?

• 22:31Speaker 02

  Yeah, so Wyoming has some really great pro crypto legislation out there. And it's really, it's not just pro crypto, it's pro consumer as well.

• 22:45Speaker 02

  It makes it explicitly legal to operate a crypto company there. It makes it explicitly clear that you don't need a money transmitter license to provide crypto services there. It makes it clear that as a developer of open source software, you are not liable for what people do with your software. So there's all kinds of great stuff in there that, you know, I hope that we'll see replicated in other states and at the federal level.

• 23:13Speaker 02

  You know, something that we're most interested in there is a new kind of financial institution that basically will sort of give us the powers of a bank there, a full reserve bank. So, you know, this is something that New York actually misses out on. The New York legislation actually enables fractional reserve banking and fractional reserve

• 23:40Speaker 02

  custody of things, including securities. So this is something that Wyoming doesn't allow explicitly. And so I think consumers are actually better protected in Wyoming.

• 23:53Speaker 02

  And so there's, I think Wyoming is going to be a great place for, for consumers to locate themselves and for businesses to locate themselves because the, the law there is actually very favorable to both sides. It, it allows, it protects the consumer sufficiently and I think it gives the, the businesses the freedom to offer the products that they want to offer. So I think we're going to see a lot more cool stuff happening in Wyoming. There is a hackathon and a conference there in September, right before Crypto Springs. So hopefully we get a lot of people out there for that. So I, I think we're going to start to see a lot of cool stuff coming out of Wyoming and we're already starting to see some other states

• 24:40Speaker 02

  copy some of the stuff that Wyoming has done, which is great.

• 24:42Speaker 00

  Absolutely. Yeah, it's pretty impressive to, to watch, not only kind of, I think the quality of the work that's being done there, but also just the speed at which it's getting done. It seems like every week or every other week, something new is getting passed and, and just a lot of progress being made, which is pretty cool to, to watch. Speaking of-

• 25:02Speaker 02

  It's, it's really amazing how fast they're moving there and, and they clearly

• 25:08Speaker 02

  have their residents' interest in mind. You know, it's not like a crazy political horse trading operation, you know, where you've got to woo somebody and you've got to like donate to their campaign and all this stuff, you know, to, to like get things done that are just good for people. They're out in front of it and it's awesome. I've never seen government work like this before. These guys are great.

• 25:33Speaker 00

  Absolutely. Speaking of kind of progress, you, you guys have started to, or have continued to increase the offerings that you guys provide. So maybe you can talk a little bit of outside just the core exchange business, some of the futures trading, the OTC, etc. that you guys have moved into over the years?

• 25:56Speaker 02

  Yeah, so, so spot trading was our core product. We, we have, we've had margin trading since the very early days as well, which might be the only margin trading available to the US right now.

• 26:11Speaker 02

  We acquired crypto facilities.

• 26:16Speaker 02

  Last year, which gave us futures trading outside of the United States. So in just about everywhere else in the world, you can trade crypto futures.

• 26:27Speaker 02

  We do have OTC. We've had that for quite a while. The business has been growing really strongly.

• 26:35Speaker 02

  And we have CryptoWatch, which is a multi, multi-exchange, multi-market portfolio manager and trading interface and charting platform. So you can, for all the top markets, you can pretty much see all your data there and manage your portfolio and make trades to one interface.

• 26:56Speaker 00

  Got it. And how do you view kind of the future evolution of the product, right? I think that you guys have been prudent in the pace at which you've added new assets. Obviously, as you add other features or other ways for people to interface with the company, you know, you guys are again are some of the more thoughtful and responsible folks there. What's kind of on the horizon in terms of other things that you may go into on the future or things that you're looking at?

• 27:30Speaker 02

  Yeah. So, I mean, staking is pretty hot these days. There are a lot more proof of stake coins. So we're working on a staking solution to allow people to stake with Kraken. So that should be coming very soon with support for a few coins and we'll expand the service from there. We're looking into other types of derivatives that we can offer. So that might be options, maybe other types of forward contracts.

• 28:03Speaker 02

  And we're also looking into just other financial services that we can provide. So, you know, I mentioned there's a sort of banking license in Wyoming that will be available soon. So we're looking into that.

• 28:19Speaker 02

  There may be some options for us to to offer banking services in other countries as well. And then other other types of assets, traditional assets. So could we do Forex? Could we do stocks? Could we do other commodities? You know, there are many gold tokens now. So like, that's something we're looking at. So I think that, you know, there's a very broad range of financial services that that we can get into. We have a pretty large client base all over the world. So, you know, we'd love to just offer them more services in one place and give them greater capital efficiency.

• 28:58Speaker 02

  You know, I think the more they can do in one place and the more they can leverage their their portfolio, the better.

• 29:07Speaker 02

  So, you know, I think there's kind of, the sky's the limit with with what we can do in in financial service. I think it'll be a long time before we run out of things to do.

• 29:17Speaker 00

  Absolutely. Well, I think part of, you know, at least my perception of Kraken and the work you guys have done to date is you have started with that that spot exchange. And you're now backing yourselves into much more of a financial services company. But again, centered around those ethos and principles and kind of that core belief in helping people gain exposure to cryptocurrency. And, you know, as you do that, there are incentives along the way that maybe can pull you from that mission, right? There's a kind of like this mission drift, if you will.

• 29:58Speaker 00

  But if you're able to figure out ways to find products that align with the mission and you can do it in a responsible way. I think it makes complete sense to kind of push forward there.

• 30:08Speaker 02

  Yeah, you know, actually, we have a lot of clients who never traded anything before crypto. And who have started trading crypto and then have gotten interested in trading other things. So I think that it's it's kind of a natural progression for them just to to get into more asset classes. You know, maybe they're maybe 99% of their net worth is in Bitcoin. And they feel like they should have some exposure to stocks or something else. You know, so I think that there there are all these synergies in having.

• 30:43Speaker 02

  A broader asset selection for people.

• 30:46Speaker 00

  Got it. And so, look, you are, um, you know, one of the first people in the grand scheme of things to be involved in the Bitcoin cryptocurrency industry, uh, going all the way back to about 2011.

• 31:02Speaker 00

  Give us a grade or kind of your view on from the first days that you kind of got into this to today. Have we met the expectations you had? Have we exceeded those expectations? Like, where are we compared to, um, you know, where you originally thought we could get, uh, in those early days?

• 31:23Speaker 02

  Yeah, well, um, I guess we're a bit over eight years in now. Um, I thought we'd be further along, you know, honestly, I thought we would all be riding around in self-driving Teslas that were paying each other to drive around them or move out of the way on the freeway and, uh, you know, it'd be like this crypto utopia by now. Um, but I guess things move a lot more slowly in, in real life than I imagined that they would.

• 31:55Speaker 02

  But I guess that's, you know, it's the case for everything, not people in the world still have, um, smartphones. So, uh, you know, I guess it's going to be a 20-plus year story for crypto before we really, um, start to see like,

• 32:11Speaker 02

  uh, you know, majority penetration.

• 32:15Speaker 02

  So, you know, I, I think we, we could be further along. Um, I think, you know, like I said earlier, the, the regulatory piece is something that's been holding us back. Um, and it's not just at the regulator level. It's, it's kind of trickles down as well to the banks. And because the banks are uncertain about the regulator's position, the banks aren't banking crypto companies and, and that uh, creates a lot of friction as well. Um, you see, you know, there's just a case in the news recently about, um, a crypto company that was having serious banking problems, not able to get a legit bank account. And so they used this like very shady, uh, third-party payment processor who ended up like

• 33:01Speaker 02

  having, being under investigation by numerous countries, apparently, and having a bunch of money confiscated by governments. So.

• 33:10Speaker 02

  You know, it's kind of this like in some areas is driven driven some people into these like back alley deals to get stuff done, you know, when if it were appropriately regulated, it could just be done totally out in the open and be frictionless. But, you know, some people are still like forced into to doing like really crazy things to to get crypto. So, um, you know, I think that's been that's been holding us back.

• 33:46Speaker 02

  You know, we like Japan as an example, we actually invested a lot of time into shaping the regulation there. And there was like, after years of working on this, a changing of the guard there, like, months before this regulation was going to go into effect. And the new guys that came in had very different ideas about how to do things and didn't have all of the background and backstory and, you know, all of the thinking that went into the original document and just changed things up at the last minute. And, um, you know, that kind of threw a wrench into things there. And then you saw

• 34:25Speaker 02

  numerous Japanese exchanges get hacked shortly following the introduction of the license and the regulator then just tighten the screws even more each time. So, um, you know, I think

• 34:43Speaker 02

  these kinds of things happening in the space are obviously terrible. And, you know, the regulators react to them and things just get worse. And and where things get worse, people tend to look for the easier path, you know, and they and they might go to sketchier options that are more convenient to them. So.

• 35:06Speaker 02

  Anyway, I think I'm kind of getting off topic here, but I think I think we could be a lot further along. If if things had gone differently with regulation, if we had had more clarity, if we had had better regulation, if we had had regulators that understood the real risks versus the perceived risks and understood what they can actually control versus what they can't control. And, you know, I think it's still going to be a while there. You know, I think regulators are still getting their head around. What what can they actually control and what is just futile, you know, to to attempt to control?

• 35:51Speaker 02

  And, you know, one thing that came up recently was the the SEC settlement with Ether Delta, which is a DEX. And, you know, I think that's one example of like where things are going, probably that that

• 36:09Speaker 02

  regulators will go after whatever they can. They're looking for the weak link or they're looking for the point of centralization. And, you know, I don't know if we're going to have a DEX. I think the idea of a DEX is awesome and great, and we should keep pursuing it. But, um, you know, I see most of the DEXs out there today like another eagled. There is a central point of failure and until we have a Bitcoin, you know, or the Bitcoin of DEXs, they're going to keep getting harassed by by regulators and and somebody on the team is going to be a central point of failure or compromise or whatever, you know, so.

• 36:54Speaker 02

  I think we I think there has to be like another another Satoshi Nakamoto of of the DEXs for that to really succeed. Otherwise, you know, unfortunately, it

• 37:07Speaker 02

  Without an act of Congress, you know, without the law changing. And I think we do need the law to change in, in many areas. The regulators are just going to keep doing what their mandate is, and that is to enforce the existing law. And, um, you know, you, you can't blame a shark in the ocean for biting you, you know, just doing what it's programmed to do. Uh, so, you know, I think we, we have to take these issues to the, the lawmakers themselves. And, um, I think that's how we're going to get further along. I think we also have to be careful about bad regulation being introduced and we have to do everything we can to, to block that.

• 37:48Speaker 02

  Um, because there are, you know, there are rent seeking businesses out there that, um, would, would try to convince the regulator or to convince, um, the lawmakers that, uh, well, all DEXs are evil or every market, uh, needs to be, needs to have market surveillance software that is sold by us or needs to have AML policies that can only be served by our software or whatever, you know? So there, there, there are people out there actively trying to shape the regulation to, uh, to build a moat around their business or to, to further, you know, promote their business use case.

• 38:29Speaker 02

  So, um, the people that actually care about this space developing in a positive way that isn't just captured by, you know, like five big banks, you know, are the only ones regulated and allowed to do it. We have to be very careful about the law changing for the worse. You know, I think it's better to have uncertainty than it is to have a terrible law that basically just makes things worse for consumers. Uh, so, um, you know, that's, that's always at the forefront of my mind. And it's something that we're constantly dealing with because there are these incumbent interests

• 39:09Speaker 02

  and there are these rent, rent seeking businesses that are trying to have the law shaped for their benefit and not for the consumer's benefit and not for crypto's benefit, but, you know, for the benefit of their shareholders.

• 39:22Speaker 02

  Um, so, you know, my co-founder and I got into this business.

• 39:27Speaker 02

  To to bring crypto to the world, not strictly to benefit our shareholders. Well, I think we can accomplish both. You know, the the first mission really is is to serve the crypto community and the community that doesn't yet have crypto. And it's it's a real bummer to see people working against that mission for their own business interests. But I mean, this is this is the nature of business, I suppose, is that they lobby for what's in their own interest and they try to to use the government to to give them a moat. You know, this there's this concept of regulatory capture.

• 40:08Speaker 02

  So we just have to be aware of that, and it's going to take everybody to to keep their eyes on things and to keep an eye on their local government to to make sure nobody's doing anything dumb.

• 40:19Speaker 00

  Got it. And so as you look out, where do you think the best use of the community's time, energy, and resources is spent, right? When a lot of times I have people who they direct message me on Twitter, they email me and they say, hey, I have X or Y skill set. I'm really excited about the cryptocurrency industry. I would love to get involved in some way. Where should I begin to look or what areas do you think are interesting? If someone was to ask you that, where would you kind of point them or where do you think those areas of growth are that that would be interesting to folks?

• 41:03Speaker 02

  I guess it depends on the skill set the person has, but there are a huge number of crypto companies out there that are hiring. So I would strongly encourage anyone interested in crypto who's not already working in crypto to to try to find a job in crypto and use their skills toward, you know, some project that's that's already ongoing.

• 41:25Speaker 02

  You know, if they feel like they've they've got an entrepreneurial spirit and they want to just do something on their own.

• 41:32Speaker 02

  There's just so much, there's so much out there that one could possibly do.

• 41:38Speaker 02

  You know, I think it would be great to see more outreach in, in the undeveloped world or these countries which are having like massive currency problems. You know, but I, I recognize also you may need to, to really have boots on the ground there to be effective and you may need to know the culture and the language. I think that there's really interesting stuff happening with on-chain scaling, with, with cross-chain transactions.

• 42:14Speaker 02

  You know, I think DEXs are super interesting.

• 42:18Speaker 02

  So I, I think there's all this, this DeFi stuff, this decentralized finance stuff that is really going to be a huge part of the next 10 years. You know, I think we're going to see a lot of a lot of things that traditional finance has done on pieces of paper be done in smart contracts. And I think you're going to see like the tokenization of all sorts of assets. And, and once you have, you know, let's say your house tokenized, you may not have a big market for trading your house. You know, there may not be a lot of people actively wanting to buy and sell your house, but once your house is tokenized,

• 43:03Speaker 02

  as long as someone is willing to

• 43:06Speaker 02

  give you credit for that or take it as collateral in a contract. I mean, now you can, now you can leverage your house to, to engage with these DeFi products. You could, you could leverage your house for margin trading. Not that I would recommend that, but you know, there's all, all sorts of things that you can do once more of the world becomes tokenized. So I think that's super exciting too.

• 43:33Speaker 02

  You know, I don't know. I think you could even try to teach a class at your local college or high school or something. You know, I think that would be a great use of time and a great benefit to a lot of people, too. So the space is so broad. I mean, there's almost anything, any, any interest anyone can explore in crypto.

• 43:54Speaker 00

  I think that I think it's a very fair answer. Before I wrap up, I usually ask a rapid fire set of questions. What do you think is the most important company in crypto other than Kraken?

• 44:04Speaker 02

  I would say Coin Center, or I would say Chain Code Labs. You know, and these aren't really companies, so I don't know if these count, but I think they're both contributing a lot to, to the furtherance and development of crypto.

• 44:21Speaker 00

  Describe both of those for the people at home who don't know.

• 44:24Speaker 02

  So, so Coin Center is, is a nonprofit, basically a think tank that

• 44:34Speaker 02

  has the task of educating regulators and lawmakers all over the world about how crypto works, what the risks are, how the regulation should be shaped, how the current regulation should be interpreted. So it's, they've got tons of useful articles on the website. Almost anytime any regulator takes some sort of action, they have commentary on it. And it's, it's just a tremendous resource to the whole community. And I think they've done a great job of preventing some terrible things from happening. And they've also gotten some, some

• 45:15Speaker 02

  great things to happen. Chain Code Labs, they are basically a, a nonprofit as well that develops Bitcoin. And they got some of, some of the best core Bitcoin developers out there. And, you know, they're, they're an independent organization that, that is basically just dedicated to the furtherance of, of the Bitcoin protocol.

• 45:45Speaker 00

  Got it. And then what's the one regulation that you would change or improve if you could?

• 45:52Speaker 02

  There are a lot, even outside of crypto, there are a lot, um, you know, it would probably be something like, um,

• 46:01Speaker 02

  you know, any, any, um, any act that is consensual and does not have a victim other than yourself ought to be legal. And that would probably, uh, you know, free up prison space by like eighty, eighty percent. Um, but inside of crypto, I would say, you know, the one thing that's impacting most people in the United States right now is this, uh, the accreditation requirement to invest in a startup stage company, you know, so right now you basically have to be a millionaire to invest in a startup. And, um, I would love to see some change to that so that there's some way for

• 46:45Speaker 02

  people to qualify themselves into, to being able to invest. So maybe it's some sort of test or, um, or there's some other, you know, maybe there's like just a cap, like maybe you can only invest $5,000 a year or whatever. Um, but there's got to be some way for people to get exposure to earlier stage companies and projects, um, than being a millionaire, you know, it's, you're allowed to buy lottery tickets, you're allowed to go to Vegas and gamble, uh, but for some reason, you, you couldn't put $10 into 10 different companies or 10 different tokens that happen to be securities, uh, because it's just too risky for you. The government doesn't trust you to make these decisions.

• 47:31Speaker 02

  So, you know, again, back to, to my comment about sanctions in, in New York, you know, this feels like sanctions on poor people. You know, you could be a college professor teaching economics and you might not be qualified to be, to invest in companies. So, um, it's, that's insane and that's creating a ton of problems and, um, and how are you going to control this anyway? Because now with crypto, people can obviously, once you get into Bitcoin, you can, you can send your Bitcoin anywhere in the world, you can do anything you want with it. There's no choke point at the bank level. So people are going to do this anyway. So I think it's.

• 48:16Speaker 02

  It behooves the regulator to to get in front of this and to to make some adjustments, I think, you know, or Congress to make some adjustments that allow people to do what they're going to do anyway, but in a safer way. And right now, they're just kind of forcing everyone onto the black market because there's no legal way for them to invest in the things they want.

• 48:40Speaker 00

  For sure. What uh, what's the most important book you've ever read?

• 48:44Speaker 02

  This is a good question. Someone else asked me this recently, and I said it was The Sneetches.

• 48:49Speaker 00

  Ah, somebody stole my question.

• 48:52Speaker 02

  The Sneetches by Dr. Seuss. It's pretty solid.

• 48:56Speaker 00

  Why that?

• 48:57Speaker 02

  Um, it's a great, it's a great book for kids. It teaches you all about markets and trends and um, uh, I don't know if you've read it, but basically there's this um, there are these creatures called the sneetches and and develops this fad of like putting a star tattoo on your belly. And this guy shows up with this machine to do it and he's charging everyone and then then something like 75% of the sneetches have the star and now it's not cool anymore. What's cool is not having a star. And then he gets to sell you the the tattoo removal service to go back the other way. So I thought that's like a super great

• 49:39Speaker 02

  story for kids and teaches you about markets and teaches you about trends and um, and teaches you about being the service provider in the middle of all that. So um, I think that's a great book. I recommend everyone read it.

• 49:53Speaker 00

  That's awesome. Um, aliens, believer, non-believer?

• 50:01Speaker 02

  I believe that there is some form of life out there in the universe outside of Earth. But um, you know, what it looks like or what level of intelligence it has, uh, I don't know, but it seems like the universe is so vast, there's got to be some other form of life out there.

• 50:18Speaker 00

  You think we'll come across it in our lifetime? Like we'll uh, discover, communicate, you know, in some way interact with?

• 50:26Speaker 02

  You mean in the lifetime of like you and me or like of humanity?

• 50:29Speaker 00

  Yeah, you you and I.

• 50:31Speaker 02

  Uh, I doubt it. I doubt it. Um, but who knows, you know, technology is moving so quickly. I mean, and maybe um, maybe we get our bodies sort of.

• 50:43Speaker 02

  Cryo-preserved thirty years from now and we're shipped off to the other end of the galaxy. And, you know, we wake up thousands of years from now and meet some aliens.

• 50:57Speaker 02

  But yeah, I don't, I don't know, could be a random, a random thing, you know, maybe they're out there watching us and just waiting for the right time to, uh, to come check us out. You know, in Star Trek, there's this concept of the, the prime directive and normally they don't, they don't even let themselves be known to, uh, planets or races that have not discovered warp drive technology yet. So they're like out there observing and waiting just for some point where they become evolved enough that,

• 51:28Speaker 02

  they want to interact with them. So that could be happening.

• 51:30Speaker 00

  Yeah. Think you're, uh, I think you're on to something. It is likely that there is life and we'll see if we come across it before, uh, before we see our death. Um, I end each podcast with, uh, allowing the guest to ask me one question, any question you have for me.

• 51:47Speaker 02

  What is your, besides Bitcoin and Ether, are there any coins that you are pumped about?

• 51:54Speaker 00

  No. Um, I, I am, uh, I'm probably a little weird in that, uh, I am more on the side of, uh, deep conviction, a small number of investments than I am in, uh, kind of look at the potential of all of this stuff. Uh, and the reason why is, um, I think twofold. One, uh, I just happen to have a very deep personal belief in, uh, Bitcoin, what it stands for, the value it brings, um, and kind of the future.

• 52:36Speaker 00

  You know, how kind of the future unfolds or evolves. Um, so I think that's one. And the second thing is, uh, I am probably in the camp where, um, not everything that is being built, uh, but a lot of the core functionality of, uh, some of these newer tokens are, uh, likely to end up on, um, a smaller subset of winners. So I don't, I, I'm not even going as far as saying there will only be one winner, but let's call it, you know, 10 or less main chains that, um, a lot of these features end up getting incorporated into. Uh, and so if you look at the, you know, two, 3,000 different coins are out there,

• 53:19Speaker 00

  a lot of it's probably just going to be zeros and, and worthless. Uh, and then some of it'll be like R and D for those eventual winners. Um, I think the, the big question to me, uh, when I'm actively spending time on now is if I have deep conviction on Bitcoin specifically, you know,

• 53:39Speaker 00

  what are the three to five others that, uh, I get excited about and think have potential to be, you know, one of 10, let's call it, or less that, uh, that end up being global winners? So I don't have an answer yet, but, but that's something that I'm kind of going through as an exercise now.

• 53:57Speaker 02

  Yeah, I tend to agree with you on that. There's a lot of competition for the same use case. And, um, and in some cases you have the more adoption of the inferior technology. So it'll be interesting to see how it ultimately plays out. The, I agree, there's, there's generally like, you know, not a reason to have like 50 chains all doing the same thing. Uh, only slightly different. So.

• 54:28Speaker 02

  Yeah, I think I think we'll probably, you know, I tend to agree with you on that that we'll see a fewer number of tokens emerge. At least for these kind of global use cases. And then I think we'll see, you know, of course, all sorts of tokens on top of of these networks.

• 54:45Speaker 00

  Yeah. And I think, you know, the other piece for me is.

• 54:51Speaker 00

  I say that and then I'm always like careful to caveat. I actually encourage the experimentation today. So I'm not one of these people who's like, oh, everyone should stop working on everything else and go work on like, you know, the five chains I think are going to win. I actually think it's a evolutionary process. So like, we need thousands of different projects and experiments to go. And then we kind of whittle it down over time and and that time period may be five, 10, maybe even 20 years, right? But but I tend to come at it from like, let's encourage the experimentation today.

• 55:27Speaker 00

  Let's figure out what works, what doesn't work. And then the kind of strongest, best value, right? And you can define value in a whole bunch of different ways, but kind of utility to the people who want to use it. Will end up not only sustaining, but but actually thriving over time.

• 55:42Speaker 02

  Yeah, absolutely. I think we're, I think it's great to have all this experimentation. And it's cool that it's just this open laboratory and you can see what everyone's working on. And I think it's just going, the pace of this is just going to increase as more people in the world start to understand crypto and there are more universities offering crypto courses and it it becomes more just a part of, you know, everyone in a computer science programs curriculum, you know, to to take some crypto classes. So I think it's just gonna, it's gonna continue to blow up. And I think it's, it's awesome.

• 56:23Speaker 02

  And yeah, I think I think that the winning coins will just take the best out of out of everything and incorporate that stuff and it'll be better for everybody. And it's just, it's amazing at the pace that we're moving with this now, like things have really picked up a lot since the early days, you know, we just had basically like Bitcoin and name coin. And and now you just have thousands of coins and and so many really, really smart people in the space. It's just kind of like. Mind blowing how many, how many smart people are working on this stuff.

• 57:02Speaker 02

  So it's super cool and like, I love going to work every day because just not only for the crypto drama, which is always interesting. It's like living inside of a soap opera, but just the, the technical innovations that keep coming are so interesting and, and to think about how they're going to change the world is so interesting. So it just seems inevitable at this point that, um, you know, crypto is going to be a big part of our lives for, for forever.

• 57:34Speaker 00

  I couldn't agree more. So we will see how, how it all plays out, but, uh, I'm a big fan of what you guys are doing. I think, uh, you guys have been just incredibly prudent and frankly, I am, uh, quite blown away by how you've been able to keep kind of the ethos and the principles intact as you guys have built a quite large business. Um, so, uh, so best of luck moving forward and we'll have to.

• 57:58Speaker 02

  Appreciate it. Love the podcast, big fan of the podcast too.

• 58:01Speaker 00

  I appreciate that. Uh, we'll have to do this again in the future when, uh, we can get, get some updates.

• 58:06Speaker 03

  Hey everyone, Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the Apple, Spotify and other podcast charts, please do us a favor and rate, review and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.