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Unleash The Kraken

Overview and Origin

Deep in the seas of crypto lies one of the ancestral crypto exchanges, Kraken. The digital asset unicorn emerged as one of the first crypto companies out of the blockchain revolution in 2011. The company was most notably co-founded by Jesse Powell, and officially launched in 2013. [1] Kraken is a digital asset marketplace where users are able to buy, sell, stake, leverage, and store crypto currency. Jesse was no stranger to crypto or to exchanges as he served as a consultant to the infamous Mt. Gox exchange. It was through working closely with the exchange that Jesse was inspired to start Kraken. Kraken was a result of the eventual fall of Mt. Gox.

Crypto needed another exchange to pave the way besides the failed exchange Mt.Gox. Jesse sought out to do create Kraken, the solution to the exchange problem.[2] Kraken was funded through a Series A round of $5m USD, the round was led by the European Based Hummingbird Venture Capital Firm. [3] Kraken strived to be better than Mt. Gox, one of the largest competitors at the time. Through a few healthy crypto cycles, Kraken grew much larger and in 10 short years from launch Kraken sought a $20 billion valuation and was on the cusp of conducting an initial public offering.[4]

Jesse Powell’s Kraken sought to be better than existing exchanges. Kraken’s business model and activities prided itself on being able to prove proof of reserves, and led the way in this metric since inception. Proof of reserve is a mechanism that is employed to substantiate the claims to assets backing customers, and custodial balance sheets promoting transparency, and the integrity of Kraken.[5] Furthering Kraken’s alignment with crypto, Kraken is a leader in client privacy. They remain one of the exchanges who defend and fight for privacy. One of the main functions of any crypto exchange is its focus on onboarding customers into the crypto world. Without user onboarding, and smooth experiences, crypto as a whole fails. Kraken has other key missions, and are encapsulated in their mission statement, “Our mission is to accelerate the global adoption of crypto so that everyone can achieve financial freedom and inclusion.”[6]

Buinsness Activities

Embracing their mission, Kraken focuses on onboarding retail, and institutions seeking inclusion and financial freedom. Retail and institutions are very different market segments, each with their own needs and requirements For a retail customer, they seek to store their crypto safely and conveniently on exchange, while institutions will want many other requirements met to back the safety of their assets. Due to their advanced nature, institutions will want to be offered more advanced solutions such as prime services. Prime services include lending and some form of interest for their assets if they accept counterparty risk. Proof of Reserves is crucial for prime services to function properly. By certifying their crypto ledgers, they are by extension a leader in the prime brokerage business. This dedication to Proof of Reserves provides Kraken a level of acceptance that many other exchanges can never be privy to, and puts them well ahead of their competitors.

In order to develop a robust platform, Kraken’s business further offers multi-chain, multi-platform, and financial solutions touching nearly all facets of both crypto and traditional finance. Kraken’s solutions and offerings include margin trading, staking, trading, OTC trades, vanilla buy/sell orders,and research. One very distinct and fundamental appeal to Kraken is how they treat their customers, and their dedication to the crypto ethos. They are very much a crypto company first, their values very much align with the core themes of decentralization and crypto. These principles and business activities have granted Kraken a future that many other crypto companies are not able to achieve. Though Kraken has its principles and activities inline, they are not able to thrive solely on these. They must also be a leader of technology.

As a crypto exchange, Kraken uses blockchain technology to carry out its essential functions as a crypto exchange. Kraken is home to over 20 different blockchains, all possessing different levels of technical requirements.[7] An example of Kraken being a leader, they were one of the first to adopt the Bitcoin lightning network, a scaling solution for the limited throughput of the main layer of Bitcoin.
Kraken continuously upgrades their systems and implements new solutions. An example of this is the multiple Ethereum Layer 2 solutions that have arrived to the blockchain space. Users no longer need to bridge their currency from one layer to another, they can simply transact all on the same layer[8], eliminating extra risk and steps to transactions. The grapic below from Kraken's website, shows only a small highlight of some of the projects they offer on their platform ranging from L1 to L2 solutions.

To be a crypto exchange one can not only focus on crypto, exchanges must also focus on the cross between traditional finance, regulations, and standing payment rails. These extra layers of requirements cause additional technical components, and must be up to the standards. Kraken’s ability to stay up to date, and up to speed with hardware continues to propel Kraken as one of the best crypto exchanges available and a thought leader in the space which continues to develop crypto and the financial industry.

Landscape

Kraken is a crypto company that is contributing to the financial revolution which democratizes finance and creates a level playing field of knowledge for all. At its roots, Kraken is an online platform and marketplace that facilitates the buying, selling, and trading of various cryptocurrencies. The largest trend in this space is the adoption and rate at which people are being onboarded. The population wants this technology as it offers an abundance of solutions, services, and opportunities.

One of the largest treds in blockchain technology is the use of its public ledger. With a public ledger, users are able to engage in Decentralized Finance, also known as DeFi. DeFi currently is the largest application of blockchain, and has spurred much of the adoption for users. As a result of this adoption, crypto has become a top concern for many, and is currently on its path to regulation by top government officials. This aspect of crypto and blockchain is imperative, and has brought on the likes of some of the largest asset managers in the world. Blackrock, Franklin Templeton, Fidelity are all seeking to launch ETFs around spot, or physical crypto. This alone is an astronomical emergence for the crypto space.[9] Though Kraken has some of the deepest roots in crypto, it is not the largest. Kraken has many competitors including Coinbase, Binance, Gemini, and many more. As one of the original exchanges in space, Kraken is certainly a force to be reckoned with. They are instrumental in the evolution and continued decentralization of finance. The image below from Forbes depicts Kraken as a leader in the space.

Results

The impact Kraken has had on crypto technology, crypto adoption, and crypto regulation is immeasurable. The thought, resources, money, and dedication to the space has shaped crypto for its entirety. Measuring a crypto exchange’s performance is similar to comparing other companies, with slight variations. The main way to stack exchanges up is users, revenue, and volume. Kraken is one of the most established cryptocurrency exchanges as highlighted in this case study, and they have a significant user base. As a global corporation, they serve customers globally and continue to gain popularity. Kraken's revenue is generated from trading fees, withdrawal fees, and various other services. These fees are correlated directly to trade volume, Kraken consistently ranked among the top cryptocurrency exchanges by trading volume.[10] On the metrics stated above, Kraken is a top exchange in the space. Kraken continues to excel and grow even during slower time frames. Their focus and dedication to the space is welcomed and needed in the crypto ecosystem.

Recommendations

The biggest advice for Kraken, would be for a simpler interface. This would require a full redesign of their website. Oftentimes the website is clunky, and non–user friendly. However, Kraken does focus on the slightly more advanced trader/institution where they are in need of these services. I believe a website redo would benefit the company tremendously because they launched a seamless mobile app. The use of the user app verse the website for less intensive things is spot on. By providing the same experience on the website would bring more customers to the website, and could increase the opportunity for more touchpoints or onboarding of services. Bringing customers to the website instead of the app opens the user up to the entire capability of the platform. Kraken has a great platform, and has executed the crypto experience nearly flawlessly, they know what it takes to be a crypto first company, and only require a better user interface. Their implementation of technology has been on the forefront, and they continue to lead in the adoption of new crypto services.