Kraken CEO: How I Built a $20B Company

Transcript

Welcome back to the rollup. We are live here at the Bermuda Digital Finance Forum day one. We're here with Arjun Sethie, the co-CEO of Kraken and Payword. Arjun, how's Bermuda treating you? >> Uh, it's good. Actually, this is my first trip here to Bermuda. >> And uh it was bumpy on the way in, so I can see how people can get lost, you know, in the rocks or Bermuda Triangle, whatever it might be. But uh it's pretty beautiful, so I have to admit. >> Yeah, very very cool. There's lots of great people here. Uh I mean we've talked to uh a lot of people that are focused on regulation. Uh clarity act in institutional lead as well about the news with Franklin Templeton.

>> Yeah. How how was that? I I stepped out because Sandy and uh and he was here. >> Yeah. I mean you guys are obviously moving forward bringing all different types of assets on chain. You guys have had a hell of a run last couple years. Argent your first time on on the show man. I was just telling you that, you know, Rob and I were trading in the University of Florida library on Kraken in 2017. Um, >> I then I heard you guys got wrecked. >> Yeah, we did by Arthur Hayes. I don't know why I ever took my money from Kraken to BitMX. That was the first mistake. >> That was that was the beginning. >> And got debanked and so Operation Chokepoint uh you know uh caught another one unfortunately. Yeah.

>> You said you you were also part of you also got caught up in that. >> I was uh debanked by FRV and SVB. Um because we had started a crypto fund. Obviously, they didn't tell you why you were being debanked, but that was part of the process. And >> no, you just got the letter in the mail. Yeah. >> Well, I didn't get the letter in the mail. I just I got the the phone call saying, "Hey, we got to turn off your account." And then you would ask why. And they said, "We can't really talk about it because there's some KYC AML issues." I'm like, "Okay, well, what does that mean?" And then it just gets lost in the ether. >> And so, the entire industry has come a long way. like we've overcome so much uh you know operation chokepoint uh the

Gary Gendler era uh now it feels like the resurgence of public markets are are coming around uh larger crypto fundraises as well uh you've been uh you know at the center of this Kraken has been at the center of this I'm just curious if maybe um you know you can you know talk a little bit about the transition from uh what we were facing as an industry you know even just five years ago to Now, what do you think have been some of the most significant changes that have allowed companies like Kraken to flourish?

>> I I think one thing that gets lost is that most people look at crypto just from a US lens. And I think uh it's it's important to take a step back and remember globally it's being adopted. So, we talk about early adopters, mass adoption, we talk about BTC, BTC to ETH to all coins, stable coins, tokenized equities, commodities, so on and so forth. And uh I think probably what has made the industry more successful is that you've just had global mass adoption in a permissionless way where in a lot of the what you call rest of world markets some people call it gray markets unregulated markets. That's not true. They are regulated. It's just that the regulations allow you to be able to build um access create foundations

create any of these products for people um in in the crypto ecosystem. And then over time you've seen people create a lot of unique products including perpetuals which is I think something that gets missed because we've moved on to prediction markets as quickly as possible. Um so I I think for companies like Kraken or Coinbase started in the United States took a regulated path and regulated path doesn't mean like the right path or the wrong path. It just started in the United States and so the natural inclination was let's regulate ourselves and let and let's be good stewards and then expand. Uh but some companies only stayed within the United States. Some companies went into other regulated markets. What we did is we went global right off the bat. Um Europe being sort of our actually first market

and then coming back to the United States over the last 15 years. And that's actually what's helped us uh become more and more successful because each market that we went with any of our products across consumer or professional traders or institutions, we were able to test that out in any of these global markets, see how well it worked, get adoption, then bring it back and forth depending on which constituent or jurisdiction mattered. >> Yeah. I mean, Kraken started as a place to trade crypto as an exchange. It's since grown, you know, massively into what I kind of think of like a almost like a prime brokerage onchain, off-chain, a tokenization platform.

There there's so many product lines, you know. I'm curious when when you were starting Kraken, what was your original vision for what this crypto landscape would be and what this Kraken company could be and and just kind of take us through this evolution here of the developments kind of a lot of these things are path dependencies, right? or certain events happen that are out of your control that dictate your product strategy or dictate your expansion strategy. Kind of just walk us through the evolution of this company as you started from a very small kind of grassroots company into now a very large a very large organization.

>> Yeah. So just to clarify I didn't start the company u but I was a early investor and believer. So the two co-founders um Jesse Powell and Tonloo started the company around 2011 and the they had started the company based off of the premise of what they had seen with Mount Gaus. So if you've been in the industry long enough you know that Mount Gaus um got hacked not just once but a couple times. Um and so Jesse was a part of some of the folks that went to help figure out um how to fix Mount Cox and and make sure this type of stuff didn't happen before. He actually then decided to come back and start a regulated exchange. But what was more important was that um it was an exchange where it was uh regulated uh privacy and security um from day one. Um and then also just

making sure like there was a a matching engine that like made sense, an order book that made sense and it was transparent just like you would see in any traditional market. That's how the company started. And so you create an exchange and obviously BTC and then ETH you know amongst other assets over a period of time. I think what was more important was um his background and uh coming from gaming but then also moving directly into professional trading was how do you build a product for professional traders and professional traders want they want smart execution they want transparency they don't want to be front run they want to be making sure that they are trading at the same level of any institution is trading so it's not it's not that someone gets um a subsidy or kickback which is what you've

seen on a lot of exchanges and so we stayed what we all fair right from day one. Um and so that's that was actually how we started as an exchange. Then we built the infrastructure um on top of the exchange. We added more onboarding and offboarding. We went more global um and then we added more and more products because our professional traders were demanding that they they're a they're the most price sensitive people on earth, right? Because they want like uh cheaper costs. They don't want the transaction fees. They also want access to leverage in some cases. They want collateral efficiency. So we kept building out these products and so then we then we actually evolved in two different directions at the same time.

One was how do we cater to institutions so the algorithmic folks the high frequency folks etc. Then we went consumer which is okay great all of the products that we built for professional traders. How do we simplify those products and give it out to consumer and retail folks all over the world. But professional traders are not in one jurisdiction. They were global. So then we got licensed in Europe first um over a period of time. Um I think we were one of the first exchanges to get um Mika authorized through CBI. Um we got our method license through Cyprus to be able to uh cater all types of products and services um in Europe. Then we did the same thing in Canada, Australia, now in the United States. So the reason I say that is we're going markettomarket, jurisdiction to jurisdiction. Capital

markets licenses, money transmitter licenses. So too much detail could be boring. The whole point here is regulatory stack, infrastructure stack, exchange stack. You can think of us as building interactive brokers, a banking and financial services product, um an exchange like NASDAQ all in one stack. And then we have different products or interfaces is what we call it. So Kraken Consumer, Kraken Pro, Ninja Trader after we acquired them last year are all interfaces that hook into the exchange as firstparty applications. And that was the story. And then we elevated Payword as our brand, which is what the company had always been to say, okay, great.

We've built out the infrastructure in order to support our first party applications. And now we're going to use that same infrastructure and microservices that we created in order to enable fintech apps, um, algorithmic traders, anyone who wants to build permissionlessly overtime anywhere in the world, trading as a service, trading service in a box, onboarding and offboarding, card issuance now, treasury management, um, with a new US newest acquisition of Reap. And so the more of the stack we continue to build, the more liquidity we build, the more uh custody staking and lending we can offer to not just ourselves and our customers, but everyone that we can let people build permissionlessly everywhere. So that's been the story and the arc and what we've been building towards.

>> I I want to mention just a couple of the things in the regulatory stack that you know are in addition to this Michael license that you talked about early on, one one of the stewards there. I I also saw the skinny Fed master account. Um this is part of the US stack. This was a big announcement as sort of a a working group thing that they they theorized. You guys came in and made it practical. Uh I think there's also a bank charter uh you know floating around out there as well which also adds to the comprehensiveness of this regulatory stack in the US in particular. Um and then you mentioned how you know the the grand vision here is that you know you have all of these interfaces that hook into the primary exchange and you have regulation interfaces uh that that provide the fair fairness and protection

around these interfaces and the exchange itself. >> Well the interfaces are how we interact with a customer >> and then a certain set of those customers also provide liquidity to us or we provide liquidity back to them. uh but I think what's more important is that yeah I mean our regulatory and infrastructure stack is embedded so that we can serve clients for the products that they're looking for. So for example, we just recently lost la la la la la la la la la la la la la la la la la la la la launched spot margin in the United States. um it's always been available in other markets but you know a week ago we launched that and the reason we launched it was because we also acquired Benomial so we have the necessary FCM DCM and DCO in order to be able to provide these services to our

customers regardless of who they are from an institutional to a pro trader um to an accredited investor or equivalent for a CFTC or commodity style trader all the way down to a you know retail margin trader if they want to you know use any of these products regardless of the asset class and I think that's important too multi-product multiasset So we say crypto, we think BTC, ETH, altcoins, memecoins, but tokenized equities is a large part of that. And then over time, we're going to do equity permkin to, you know, how people think about single stock futures, but we're going to focus on perpetuals.

>> Yeah. Curious because it feels particularly relevant today. You know, Anthropic came out and said, "Hey, you know, a lot of these secondary SPV vehicles aren't really shares." I think the price onchain dropped 24% or so. Obviously, these things are still, you know, they're still at their fair market value when it comes to the actual shares. How do you think the the uh subset of the industry of tokenized equities? How do you think that is going to progress? How what is your tokenization mindset when it comes to these highquality assets like equities? >> So, not all equities are high quality.

Not all of them are um uh like you know assets that you want to buy. And so since the late 1800s, you know, 95 to 98% of equities that have ever been created are zero or don't exist today. And so you can make the same argument like, you know, about memecoins and the half- lives and what, you know, what you should be investing in or whatnot. So we're not going to give investment um advice, but I think it's always important to understand the context and history of an asset within an asset class and how long they last. Um, in terms of equities, even in the public markets and private markets, there's something that you call power law, right? in the public markets, we call them the mag seven or the mag eight or whatever the numbers are going to be in the future or the mag one, who knows

with um you know the AI companies that might be like in a in a league of their own. I think what's important is between the public and private markets, how do you deliver access to people worldwide, which is the promise of crypto in the first place? How do you give them access to be able to get access to these assets? Now, once you have access, what do you do with that? Well, in the United States, we're used to being able to borrow against it or store it or lend it out, etc. So you want to be able to make those products available freely either through DeFi or through the exchange or you know vertically integrated together depending on how you think about the layer 1 and layer twos that are out there. Like we're in the really early innings. So when I say all these things

that I don't mean to use um you know uh like flavorful bombs of just like you know random uh um like you know flavor of the week of of a word. Um, but it's more that like we're trying to figure out what this will look like in terms of access to capital and then access to debt on behalf of those assets. So, it could be anything, right? Gold, we we announced the Franklin Templeton, you know, gold tokenized gold ETF today. Great. Well, what is it? What are the next set of 10, 50, 100 that are going to be out there that people want access to here in Bermuda, Latin America, Africa, Asia, etc. Um, and then how do you use that as collateral to do something? So you go from speculators, traders investors savers risk managers, they all have a different u value set around what they care about.

But if you're on one collateral system or have the ability to settle immediately, no matter what the asset is, then you actually can just make better what I call riskmanagement asset decisions and that's just something that we haven't seen before. Usually the ones that can do that are the citadels and the Jane streets of the world. They're not bad guys. They just were smart about creating infrastructure to do it. Now what happens when you can give that to you know all three of us like just sitting around and then what happens when you have AI agents with their own like sub accounts on their own stable coin accounts or their own credit accounts etc. Like the world looks super interesting at that moment.

>> Yeah. Yeah. And I'm glad that you brought that up because I know that you have some you know some of these recent acquisitions on the stable coin side on some of the infrastructure side to kind of beef up the broader product strategy here. Recently, we saw one of your competitors, Coinbase, lay off about 14%, I think, of their employees, citing AI related claims with regards to uh trying to, you know, improve productivity. You were also at Nearcon back in San Francisco um in February and I'm just curious kind of how you're thinking about the growing use of AI internally with your team at Kraken as well as you know kind of you know building off that the convergence of crypto and AI at large. We saw a lot of

talk as of late around a product called um Venice from Eric Vorhees obviously near is doing a lot of work here. How are you thinking about using AI in your company and then what is your kind of broader holistic view on the convergence of crypto and AI? >> Yeah, so there's multiple questions there so I'll try to tackle them one at a time. Um, one is I I think there's this predominant feeling that AI um anything you're going to lose jobs and and I think that's that's an incorrect way of looking at it. So let's just take a step back on even what you've seen with OpenClaw or any of the other products that are out there which which I think is just really exciting. You as an individual if you use uh cloud cloud code with sub agents um they have their

own or use um open cloud what are you able to do? You're able to do something that um is what you would have to you know hire a team of 10 people to do 100 people to do or a thousand people to do. And in some cases, if you're really good at this, um, and I'm going to try as hard as possible, is like, what if you had an army of like a million people working for you? Okay. Well, imagine if you arm, you know, the 3,000 or 4,000 plus people at your company to do the same thing. I think one thing that people get scared about is like, okay, well, what happens if, and I have this conversation internally all the time, you know, you think about Karpathy's second brain and what he's been talking about. Well, we implemented that, you know, three months ago, then another um

three weeks ago, and you throw away some stuff and you put it back um into place. How do you enable everyone at the company to be able to have access to the same information, frankly, like the CEO does to be able to make decisions? If you make an entry point person at the company just as smart and contextual, actually, not smart because I don't know if I'm smart or not, but let's just say has access to all the information or context of the company, how much better of a job will they be able to do because they can just train themselves along the way. Now imagine if they have 10, 100, a thousand, a million um agents helping them along the way, which is where the world is going to go no matter what.

Like that's not it's a foregone conclusion. So can you be more efficient? Absolutely. But can you do more things? 100%. And so I think what you're seeing in the market today because there's headlines around it is that there are certain um things these companies have done over the last let's call it 10 years or 20 years. they're actually um uh companies that have built off of uh technical capabilities or infrastructure that are that have a little bit more debt and that they're older. So what do they need to do in order to be able to adapt to the times or to be able to build at a high frequency or have someone who has like a team of three people of engineers and have like 10 again 100,000 agents to work on their behalf to code and get

things out from continuous deployment to deployment into production. um it's just a it's a it's a different muscle that you're building out and so I think what you're seeing is that you are shedding some uh jobs in order to hire in another area and then there's some workflow automation that was happening without AI regardless which is you know manual things that people were doing and then can you empower those same people to do more things and if they are willing to adopt AI which you don't see a lot of times sometimes people will say you know what I just don't want to do it it's kind of like asking you know legal and compliance or finance ops or even BD sales people to use Salesforce or to use Slack or to use any of these systems.

And a lot of people didn't adapt, right? It's kind of like asking, hey, should should you like write things down on paper pencil for your grid or do you want to use Excel sheet? And a lot of people didn't want to use Excel. So, I think there's always this fear of using technology is cheating or that you're going to have brain rot or you're not going to be smart. And I think you just have to continue to educate people to say, "Hey, it's okay along the way that you're getting help because that means you can refine it." You can have AI still come up with crap. If you are thinking about something in like a um in a nonquality way, if you think high quality and you have help along the way, then ideally the outcome is high quality. That goes for every function in

the company. Um and so so I think a lot of people are having the identity crisis. If you don't have the identity crisis and you're going full throttle in, I think what you're seeing is people just get a lot more creative and those companies are just moving at a faster pace. I don't know where we benchmark, but it is like a P0 for us internally that you have to use this and if you don't, you won't have a job at our company in the future. Not because we're automating you out, it's because you're not adapting to the future of what it would look like for our company to be successful. That's internal. Externally, the more you know about what you need to build, you can build this on behalf of your clients. So, I want all of my professional traders, I want all my consumers to be able to have access to

as many agents as possible. I want them to be able to have access to as many yield opportunities and products as possible without them having to try to figure out how to understand the complexities of, you know, smart, you know, smart trading or algorithmic trading um or smart order routing like these these or like, you know, what's a limit order? Like sometimes these things are actually um easy for someone who's been educated, but imagine educating them along the way with help along the way. If you have teachers along the way, however you want to define it, co-pilot or not, or completely automated or not, I would love to just put all my money, which is what I'm going to do, just through these systems and say, "Okay, agents go wild." Because I trust them more than I trust these intermediaries and people along the way. And and I

think like with crypto, with AI, agents, workflow, whatever it may look like in the future, that is definitely a mission worth fighting for because we just haven't seen that before. And I don't think you're going to have traditional financial apps or traditional banking, you know, companies actually try to adopt that. Um, if they do, I think they'll be successful. And so, we're just going to be at the forefront of pushing this as much as possible. >> Uh, an observation is that the organizational structure of Kraken sounds very similar to the the product structure in the sense that you've given everyone in the company a context window into uh everything that's happening at the company. Uh, and >> we're on our way there. I wouldn't say that we're 100% there. That's the vision. That's the vision. And and similarly, you've got this product suite with all these interfaces into the full

context of the liquidity across all of these different platforms. Everything's se segmented, regulated as it as it should be, but you've got signal and liquidity baked in across several different products that gives an entire suite of context just very similar to the the second brain concept that you mentioned. >> This I think is the epitome of the financial super app thesis. Mhm. >> I'm curious if this was a deliberate decision to build the product and the organization in this way where you know you you see something through a lens but you see everything through that lens. Um that way everything is being shared and we have the full context no matter what lens that we're looking at it through.

Was this a deliberate decision? If so, how do you think this helps build a better more efficient system when it comes to product as well as organization? >> It's a great question. Um so one of the other hats that I wear is on the asset management side. I started a firm called tribe capital and then when the tribe capital um the value proposition was like can you use data to make better decisions what it ended up happening was that we use data to make sure we don't make bad decisions right so how do you say no uh more properly then how do you say yes when you need to so we had come up with our own quantitative framework for product market fit which is does the company and its products work or not if the answer is yes then you dig deeper if the answer is no there's no point to dig

into finding out if we should make the investment or not. It's just a no. So that's a capital allocation strategy. When you're at a company, especially as an executive or people that are leading the company, what are you doing? You're allocating capital. You're also allocating human capital and then processes. It's it's no different. So you need to be pretty surgical about how you're um quantifying product market fit. That's essentially the first thing that I did when I came in to the company was this is how I view the world. By the way, now I view this world this way, but I have access to a ton of data. So I'm able to benchmark company after company um rather than like remembering it.

Okay, so what does a typical VC do if you've interviewed them? They meet with a company kind of like this and they say like I look into your eyes and all right guys, let's do this. Well, in reality that might work one out of a hundred times. I don't I don't like making those types of bets. Um and so for me it was like great well let's meet let's like take a look at all the data quantify surgically like are you a company that works or not? and then I can get to know you and see like what you want your vision to be based off of that foundation and and baseline and then we can add capital and talent and whatever help you want in order to succeed. That worked out pretty well for us. So we said, "Okay, well, how do I do that

across the board for what we're thinking about um in the financial services space?" Because what are we building at the end of the day? We're building out infrastructure. We're building out distribution. We're building out engagement um and we're building out product interfaces. So it wasn't a super app theory. What we said is okay, you want to have infrastructure to be able to build specific um we call firstparty applications internally but what is Facebook at the end of the day if it's not like a unified risk engine for advertisements and retargeting is Instagram has data and engagement Facebook has data engagement obviously they monetize there WhatsApp has a very minimal uh monetization but high amount of engagement usage and distribution but those are product interfaces that all relay data back you can call it data liquidity if you want to and then

they're able to monetize off of that we do the same thing which is like we've got you you know, um, folks that are depositing capital, but like that interface is going to be just different. They're not looking to trade or speculate. They just want to deposit their fiat or they want to deposit their stable coins, BTC, tokenized equity, so on and so forth. That could be an institution. It could be an RAIA. It could be just a wealthy individual. So, they'll they think about the world in a very specific way depending on where they're located too. Then there's just, you know, professional traders as I'd mentioned before, arbitrage. They're looking for smart ways in which to be able to trade and they want to speculate. They want to gamble. They want to go yolo sometimes. They want to be able to use margin. They might want

to use leverage somewhere else. Great. There's products and services and interface specifically to that. The reason I say these as examples that you can't um Frankenstein this all into one application. Why? If you take a look at all the apps you've ever used, if you don't like an interface, you leave. You churn and you look for an interface that's better for you. You trust it more because you believe that you know what they want on your behalf. Um they have more data about you. They might have a better way in which to swipe. It doesn't matter. like there's always these um unique value propositions, so you move your capital. Um and so I think like that's where everyone's kind of gotten stuck, which is we've gone from a world post World War II where everything was at the bank retail location. Over time, we've bifrocated it. And it's it's weird

to me that somehow in the digital world, we're going to have everything munched into one. From an infrastructure level, totally get it. That's what AWS does. Um, but to have it all in one interface, I just think makes no s sense because if you're thinking globally, if you're in Argentina and you are starting off your life with stable coins, you're not thinking about speculating, right? Like commodities. You might over time if you grow and you crew value and you have forward mobility, great. But then there's a certain level of people like at the we call it mid-market or enterprise that may want to do that. But you go jurisdiction and country by country and then you look at the products that you offer. It cannot be the same and it cannot be Frankenstein. So in order to be able to think in that direction, Bill

Gurley has this really good line called like you gotta you got to play the game on the field. It's like well the game on the field or our customers and there's a specific value prop of what they care about. We have to build experiences for them and then we walk backwards which is okay what's the tech infra um uh exchange that we may or may not need and then what is the regulatory stack that we need? What's the onboarding and offboarding? and who are all the bank partners we need in order to service that customer. And in some markets that's a huge stack and some markets that's about half the stack. you know on this kind of uh comparing the culture of the org versus the product and kind of thinking about these things in this in this lens you know I'm curious in the in the current state of

the company right the private company versus where you guys are headed in in this public setting given the expansion of the product and as you mentioned this kind of focus on employee agency or at least this ability to kind of really shape your own destiny with with these tools internally how much do you expect your company's culture to change after you go public and what will you do to preserve the startup kind of vibe amidst a more scrutinous regulatory path ahead? How do you keep employee agency keep the kind of early stage what like ethos driven company in a more public setting going forward? I think first and foremost it just comes down to your

cultural values and so you can make any statement you want um on a website. Uh but it doesn't mean you live to it and it doesn't mean you have virtues and values around it. I think uh Ben Horowitz has like a really good book which is like do you live and imbue those values of what you write or do you just write it on like a tombstone and you forget about it. Um and so part of what we've done and we made mistakes along the way. It's we haven't we have for us to say we were perfect the whole way like I I see these podcasts of other founders or executives that say we kept our culture the same the whole way I just think it's total because of course it evolved and so did it evolve for the better or did it get worse especially as you get larger and

so there's a lot of books around this there's a book a great book called moonshots I actually just sent it to my COO yesterday because he was going through what I call um penny pinching for everything and I was like dude just read this book please um and then use that framework and let's have the conversation again around like where do we want to innovate? Where do we want to try things? Where are we okay to fail? Learn from it and then try again somewhere else. Um and so those are hard things. We're not going to be perfect. We're not always going to be uh great at something, but you can learn and iterate and iterate. And and I think for us um one we call ourselves payword pirates. And so I think pirate has a meaning.

Some people think of it as a nefarious um attitude. Steve Jobs thought of it as like this is how you think about you know building great products. Um or you could be like the Navy or like the red coats and like lose the war um um like in the American Revolution or the Rebellion depending on where you're located and and uh and that that's always going to eb and flow for us. And then each team, each interface um if it's infrastructure or microservices, they all have different things on the line. And so there's different uh what I'd say definitions of what innovation means for those people. And so, look, uh, between myself and Dave are the two coco, we've got roughly about, you know, 75 to 80 reports, um, any given month. And, and I think that we'll either keep it that way or add it because we have different, you

know, products and services that we're building. And some of those things we know won't work, but we're going to try anyways. We're going to invest. And then return on invested capital might be zero. Um, however, we might have learned a lot in terms of how we want to do it the next time. So if you actually look at any of our products that we've built or that we bought or that we've rolled out regardless of its yield, we've tried it in some capacity in the first place and we've tried it in some market and we've seen what the results were and a lot of times we've come back and said hey you know we have no expertise here we got to buy it and I think that's a better way of thinking about how you want to build out your culture in maybe a more authentic and honest way not to

shareholders externally but to everyone internally to say look guys I need everyone to help us think about getting to this next northstar. Um, our KPIs for the for our total northstar. And I think like people at the company have come a long way. We have a I'm pretty proud of it. We have like a bounty system. We have something called a LFG reward, which basically stands for let's go reward. Essentially, like if you come up with something that's really innovative for the company and we adopt it, um, then that's a performance grant. And these performance grants are actually quite high. In some cases, my hope is that they get paid more than any of the executives do on a yearly basis because they're coming up with the ideas. And so, ideally, it's a merit-based system um and an ideas based system that are the best at like surface

to the top. And those are the people, I think even more importantly, that are leading the initiatives of the company, our leaders at the company, and we're building um the organization bottoms up, leaders from within versus saying, I got to get someone from the outside, got to get a resume. Most of the talent exists internally at the company. >> Yeah. Yeah, there's a there's a there's a kind of saying that >> you know you as a person you have to become the person uh able to manage millions of dollars, able to manage thousands of people. You have to be the person in order to you know be in that role, right? and and it's kind of like as much of a personal development as an entrepreneur as it is like building a company and building a a good product

and building, you know, a service that people want to buy and and being able to really like articulate that. We talked about like the like the culture and the way that you're building this company. What about yourself? like what what kind of actual changes have you made to your personal life to yourself as an individual that has allowed you to be the co-CEO of a soon to be you know multi-billion dollar valued public company what does what does some of this personal evolution look like from your habits from your rituals from kind of your actions how have you how have you become the person uh who deserves to be in this position >> yeah um so to the Last line. Um, I think deserving to be in the position,

that's a hard one. Like, I don't know if I deserve it. I think it's just there's a combination of luck, there's a combination of skill, there's a combination of timing, um, there's a combination of trust with the folks that you have around the table. And then there's also um that u internally at Payward u, we probably have not a diversity of thought. We're actually just very focused on a very singular mode of thought, which is like this is what we want to do. this is what we want to achieve. And and I think like that means that culturally how we think about um running ourselves is we're we're running hard all the time. Um we're we're not in a place where we think about um work life balance. We think about work life harmony and we state

that very very publicly which is like this is the expectations of people that are at an executive level, director level. Um and that's not always easy to to digest, right? like a lot of people that say I want a work life balance. We're not the place. So we actually have these programs that I think are really important that we set up over the last two years which is like we'll help you sail away from uh pay uh which is that if this is not the place for you in the first like you know even you know 3 months, 6 months or a year we'll help you find a job and like pay is not the right place because we want to make sure that everyone that's there is giving more than 100%. you know, giving more than what you would typically do because the mission of what we're trying to do

is really important. Um, now that might sound crazy, but I I think like you got to have a certain amount of fundamentalism in that direction of what we're trying to do with crypto, access to capital, open global financial rails, uh, global permissionless innovation in order to like really push those things, work with the regulator, work within um, these ecosystems. I I just think it takes a different mindset and it's not an easy ride the way in which you typical Silicon Valley companies have seen and we're not a Silicon Valley company, right? We're we've been global remote since day one. We barely raised any capital until last year. Um so I think it takes like a different um style and attitude. For me personally, um you know, honestly, I don't know how to answer that question outside of I've

been just doing this for so long, I don't really have any other mode. And so a lot of people say like, "Are you a peaceime leader or wartime leader?" I've always been in wartime, so I I just don't know any other mode. But for me, it's fun. It's not stressful. I like it. You know, I'm learning something. Uh I'm learning when I'm dumb. I'm learning when I make mistakes. Um and then if you can continue to iterate from those learnings, then ideally you can pass it on to other folks. At the same time, I also know what my limitations are. and I know, you know, the types of people that I want to have around the table, what their expertisees are and how to bring them along the way and also just give them the ability to run, but at the same time, let them know that I'm going to

micromanage the hell out of them as much as possible because that's that's how I work. Uh, but that's the same as how our co-CEO works. It's the same as how Jesse and Ton work. Jesse is like a huge micromanager. there's probably a day that doesn't go by given he's the chairman of the board that we're not in constant communication about something that's happening at the company which is rare right it's not like every quarter the board is coming around and talking to each other and and doing you know let's come to the principal's office and and give a report we're extremely um integrated which is like here's how we think about risk management here's how we think about our products here's what we're doing on the political spectrum here's how we're thinking about supporting new initiatives and new markets here's how we think about a

regulator I mean like the list just goes on where we want to have as many people participate in that no matter where they are in u the chain and then the better that they do the more that we want to elevate them. So, our CFO internal, our COO internally, actually was what we call a boomerang. He came back. Um, our co-CEO was the CEO, but he's still there at the company. Um, I'm a coco, but uh I've been on the board for five plus years, an investor and shareholder for a long time. So, we like to make the argument. I don't know how true it is or not, but I wasn't external, I was internal, and I just came into the company because I was asked to come into the company. Um, so there's no coup.

Jesse and Ton are both active. They're still at the company. There's no change. And so the company hasn't really changed DNA too much. And and I think what's more important is everyone um has the same uh mission and value sets that they really care about. And so we've changed our personal life in order to adhere to that. So you can call us chameleons or we've changed our lives in order to meet that goal. But yeah, I mean Payward is just something that I wake up with and dream about and go to sleep with and then wake up again in the morning like there's no change. I I love the distinction between harmony and balance.

Uh harmony to me is a sense of one plus one is three. Uh you know you find work life harmony. You know you you end up better at both whereas you know you you can achieve one and one being two in a balanced format but ultimately you you re gener re-energize rejuvenate as a result of working on on the one and they end up harmonizing together and both are >> I'll give you an example of that. I think some people used to think it's weird when I I used to raise capital um a tribe capital or limited partners is I would just take my kids with me like if I didn't have time I would say you guys just want to like go on this trip. So I've taken them all over the world. I've taken them to the A1 races for our sponsorship partnerships. I've taken

them to meet with regulators. I've taken them to the White House because I had nothing else to do. Like I didn't want to leave them at home. I didn't want to leave them at a babysitter. Um, I just wanted them to go and so I think in the beginning they thought that this is like the most boring thing possible. My oldest is 14, my youngest is not uh now now nine. Um, but now it's like a part of their workflow, right? Like they know all the people I work with, they joke around with them. They have the same lingo. Um, and I don't know if it's going to be a good or bad for them. It doesn't really matter to me. It's just that they are part of that workflow. Um and the work life harmony um uh the uh the statement it's a it's a baso

statement actually like I'm not coming up with new stuff. I'm just like reading as much as possible and infusing it. Um you know these these are I don't think these are novel approaches. It's more about like how do you use it in your everyday versus just you know uh making a statement that you think you use it. >> And those experiences are entirely up to them know what it is what they make it. Um, you know, we talked a lot about the intangibles and the culture of the company and how this might change as it goes public. You personally as well as the the organization as a whole. I'm just curious, you know, in in these few minutes here, you know, what are the incentives? You know, you mentioned how internally you have this uh this performance grant, if you will, this, you know, idea based uh uh you know,

bonus uh and that could help to promote that attitude internally to the company. Um, there's a lot of companies out there that have chosen not to go public. uh they're really valuable companies. You know, you can rattle off the list, but look, a lot of the, you know, largest private companies now are bigger than a lot of the public companies that are out there now. What is the incentive to go public? >> So, I think the reason why, and I'm going to put my trap capital investor hat on, the reason why people have been wanting to go public are sort of a plethora of reasons. One is the uh quarterly disclosures and the amount of money it takes in order to be able to be a public company in the first place, right? Sarban Oxley's you know post208 all the rules and regulations that I

don't want to say created friction but created enough costs in the um on the way to go public that just makes it harder and so what did they do they said okay instead of being at 50 million in revenue or ARR let's go wait till 100 then over time it was from 100 to 250 500 now even a billion right um and so even companies like us right like um you two billion plus in revenue um we've chosen to stay private for as long as we have and frankly we didn't even need to raise capital. So, we actually had more of a dictation to, you know, decide what we wanted to do. You have companies like Stripe that have said that they'll never go public. And you've had companies like SpaceX that have said we'll never go public, but now I've decided to go the

other route. I think at the end of the day, the real answer becomes you want access to capital is one of um and access to debt capital markets for your company. I think for financial services companies, it becomes really important for them. In addition to that, if you're a regulated entity and um you got to, you know, give your audited statements and financials to other regulators um all over the world, it's better to be a public company in my opinion to be able to again then have access to more capital and debt markets and expand and grow in those markets. So, I don't think being a public company is for everyone depending on you know it's your company at the end of the day if you're private and how much you own of it. Um and so our aspiration has been who are our clients and how do we serve them and

what do we need to do on behalf of them and what are all the products that we have and then along that way in that journey if we decide to become public um then we will if we decide not to then we won't and it's going to really depend on what do we want to have in terms of the products and services and offerings for our customers in any of these jurisdictions globally. >> Yeah. And and then with a huge decision like this, I'm just curious if you have a decision- making framework that you optimize around even for a a choice as big as this. Do we go public or not? Or what do I eat for lunch? What is your general decision-making framework as the coco of Kraken?

>> Um so let's do the personal one first like um and let's like talk about food. So, I have everyone thinks about regret minimization, but the problem with that is um you know, I drink a Coke every single day because I just I love the taste and I'm just going to do it, but I now have Coke minis and I do everything possible to not drink any um I still drink alcohol, but like to minimize it as much as possible. So, I actually just mentally created a threshold, which is I'm just going to only drink expensive wine. It barely basically means I barely drink wine. Um that's one. So it helps out, but it's it's also like what are the types of foods that I want to eat?

How do I want to spend my time during the day? And so um I've got a tattoo that's the 86400, which is like the amount of seconds that you have in a day. And so I try to think about my own calculation, which is like how do I want to spend it and what do I spend it on? So it could be family, friends, loved ones, workflow. That's one side. on the regret minimization framework. Um on the payword side, um I don't I don't think the calculus is is ever been about, you know, should you go public or not. I think the calculus for us has always been what are the products and services that we want to have out there? What's the speed of growth? Do we want to control our own destiny? What's the quality of the products that we want to have out there? And at any given moment,

those prior prioritizations keep shifting um to make sure that they're aligned with again our values. And as long as we can continue to do what we want to do and regardless of that's private or public, that's the route that we're going to take because we're thinking 5, 10, 15, 20 years out. And that's what we're going to do. And so the best way to uh minimize that regret is like do we have the roadmap to be able to frankly have fun building those products along the way not being you know beholdened to um I don't want to say a corporate style attitude but you know like you know in those movies you watch where like all the people in suits are coming in and then and then and people feel weird about it or there's some sort of like friction be between

like um I don't know modern day modern day bourgeoisi versus like the common people. And and I think for us it's like well how do we stay as common and connected as a community and as a group of people creating really cool products as long as possible. That's I think like you'll see the executives and myself stay at the company that long and if if we're forced to do anything else I don't I just don't think we'll be there. >> Yeah. >> What do you um think that you'd be doing if you weren't the co-CEO of Kraken? >> I don't know. I mean, I just I I now today don't think of anything else. So, for me to even think about that, it's just it's not it's just not a part of my DNA. Before I was at Kraken, I was

incubating creating my own product. So, I'd created a uh a bank in Mexico. So, another financial services product. I I built a bunch of protocols, a reinsurance one, some that worked, some that didn't. Two bioarma companies. I I always just like like tinkering around and building stuff. Uh, and now I'm doing all of that only within the uh the Payword brand and and all the products and services. So, frankly, I just don't think about anything else until Jesse and Ton decide to fire me or something. >> Yeah. How much do you think about competition as it pertains to what you know where you should be allocating resources, decision- making versus our vision, right? Like so for example, you know, we look at the whole landscape of media of different markets of different

niches. You see different trends, you see, you know, different concepts that do well. But we have our audience, we have our lane, we have our education vision, we have our mission, our principles, but you know, the the two are important for us to kind of analyze, look at, and make decisions based off of. How much of your decision- making is on what the competition is pushing forward, where they're seeing success, and how much of it is just your product strategy, your vision? You know, I think um this may not be an answer that you guys may like, but I I just like thinking this way is u Peter Teal's framework, which is competition is for losers. And I think we think that way, which is what are we trying to build?

What's our unique value proposition? And then what is our 10 20 year arc of what we're trying to build for? I think if you take a step back and build in that direction, you stop caring about the Twitter announcement that's going to that happened last week from your competition. You stop caring about the products that they build. It doesn't mean you don't pay attention. It doesn't mean that you don't admire some of the products that they build and say, "hm, should I think about adding some of these feature sets." It doesn't mean that there are some products that are commodities with each other. It just means that we're trying to build for something longterm. And building long-term means that you have to have beliefs in the products that you've already set out and how long it takes to grow. So, I'll give you an example. Xbox

uh we launched it a year ago. When we made the announcement, we made the announcement that we were launching the product and then we launched it and then it got to a certain size and scale. And it's has it's has its es and flows. It's it's on a what I'd call it was on a sublinear path. It wasn't actually going in the right direction. and it was just going okay, then it got really good and then it's back to sublinear and then it's going really well again. So that means you have um highs and lows along the way, but we know what where we want it to go over the next let's call it 5 years just like stable coins have taken a long time to grow and people use you know stable coins as an overnight success but like they started eight to 10 years ago in some cases and they had

a long arc in terms of adoption. Who was going to use it? How do you get customers to adopt it? what the distribution strategy was going to look like. And so we're going through those same motions today. We have competitors in that ecosystem. So we have a top down, we've got a bottoms up strategy, but it doesn't mean I'm going to spend a billion dollars on it, which is what I think a lot of other companies will do. They they'll spend a billion dollars and say we're coming out with tokenized equities, spend a ton of money on it, and guess what happens in six months? How many of those same people have made announcements around tokenized equities? Where are they today? Nowhere. they've actually in some cases um you know fired those teams or laid off those teams at like the traditional places as well as some of the exchanges nowhere.

And what we've done is, as I mentioned before, taken a very surgical approach, which is like, okay, where do we have product market fit? Let's make the investment. Let's pull back from the areas that are not working. Again, we're not always perfect. The areas that are starting to grow again, let's put more money behind it. Let's find more partners. Permissionless token, we we started pay um payword services. We call it PWS, which is funny. It's like, you know, it's a nomenclature on AWS. But the reason why that's important is that a certain set of our customers want forward deployment. They want handholding. They want to be able to have access to liquidity. They want other solutions and services alongside our infrastructure. Great. Well, we need to build that and we need to think much further out on what those services can look like rather than say, "Oh, it

didn't work. So, let me pull back. Oh, I didn't get a yield of, you know, spending $100 million of marketing and I didn't get anything back." We just don't do that. Um, and we ne we're never going to do that. Our whole thing is about like what's our payback period? How do we stay profitable? How do we reinvest our profits into the areas that we want? And so, um, uh, that doesn't mean that we're always going to have like a certain, um, EBI margin either. It just means that we're going to invest in the things we know are working, quantify it, and then put our money where our mouth is and say, "Hey guys, this is what's working." And then, by the way, every time you look, every six months to a year, you're going to see this continuing to grow. By the way, now

distribution engagement's gotten to a larger scale. Monetization is now to follow. And and and here the uh, proof is in the pudding. That's how we want to run the company is we want to be able to show what is actually working. What how can we quantify our engagement with our customers and why we think it's going to have um a better opportunity for our customers. They're going to be able to grow. We're not going to extract value from them. And then how we make money along the way while our customers are successful, not the other way around. >> Yeah. And uh to your earlier point that was you know the lessons that you learned along the way those are valuable uh even despite the capital you you reinvest uh and move forward accordingly. Um Arch man thanks for keeping it real. Uh appreciate you

taking the time. >> Yeah thanks for having me. >> I've got one last thing for you. How do you separate your self-worth from your personal perspective and your kind of life from the success of Kraken? Right. Like Kraken IPOs has a meteoric run. Everything's amazing. The company's firing. Next bare market hits, it's in the gutter. Morale's down. You've watched your illlquid value of the equity go from X to X divided by 50. You're, you know, it's just a difference. You know, even if that doesn't happen, if it's happened in the past, there's ups, downs, you've been through so many bare markets and bull cycles and with your own portfolio. How do you separate your portfolio and your business success from your self-worth? I think the I think actually think this is

a pretty important question and I I think you you see a lot of people fall into this trap is you know you've heard this term like how do you live within your means and of course what happens is that you work your whole life I kind of categorize people into short medium and long-term thinking short-term thinking is pretty normal when you come out of college you need to get a job I want to get the salary I want to get the bonus and that's kind of what you think and then the word equity like you may like on average people don't know what that means then it's salary salary bonus and a little bit of equity. Then you start learning, oh wow, what is this equity?

Like I can make more money with it. Then you start trying to seek that. The problem along the way is that you change your lifestyle as your um balance sheet grows or how much you get paid. And then what happens is a lot of people um will then start living paycheck to paycheck. You can call it keeping up with the Joneses. You want to have your kids go to this specific school. You want to get married. You want to get this ring. You want to have these experiences that you pay for. Um, maybe I'm just built a little bit different. Maybe I'm crazy. I don't do any of that stuff. And so my whole life as I've uh acred value and have also gone down to zero, I've stayed in the same house. Um, I have like a very specific budget of what I spend.

The things that I really care about are just my health and the food that I eat in terms of quality and like that's my baseline. And then being able to provide um at least the basic um value sets or experiences that I can provide to my kids. That's kind of how I think about it. that's not very expensive no matter where you're living in the world um and what you pay for. And so when I think about that and I say, "Okay, great. Do I have my cushion to be able to continue that life for the rest of my life?" Yes. And so if my assets or the value of my assets go up and down and oscillate, I just I don't care. There's probably a little bit of like care, which is like, oh, I might be able to do less things, but then that just means I'll just work

harder to get back to that place. And uh and and I tell a lot of these people in 2022 my net worth was getting close to let's call it close to a billion dollars with the crypto sort of going up or or right at that peak and then when the market was going down with crypto and the value of fintech my firm the assets that I had the carrying value what I was supposed to get basically went down to almost like four million bucks or less. >> Holy >> Um and so that my total my total net worth had gone down to a couple million bucks. And you can say well that's something. It is it is something. I I basically looked at that and said, "What? Look, I'm still better off than most people. I should be privileged to be in that position, so I'll just go

back to working as hard as possible." >> Wow. >> That's an incredible story. >> Wow. So, your baseline is just comfort, insulated lifestyle, and the rest is kind of the cherry on top. >> Uh, pretty much. Yeah. >> Yeah. >> Arth, thanks for your time, man. Appreciate you having us. >> Thanks. Enjoy uh enjoy Bermuda >> and uh yeah, have a great great rest of your conference.