Executive at Kraken Digital Asset Exchange
- Recent developments impacting crypto exchanges such as Coinbase (NASDAQ: COIN), Gemini, Binance and FTX – compressing transaction fees resulting in a need to expand product offerings
- Ability to roll out products involving lending, saving and other areas, given the regulatory environment
- Role of exchange networks provided by Silvergate Bank (NYSE: SI) and Signature Bank (NASDAQ: SBNY)
- Outlook as some exchanges push for a banking licence
What are the key trends you’re monitoring in the cryptocurrency exchange sector?
You mentioned institutional trading and I think this is a really fascinating turning point that happened in the sector over the last 2-3 years. As it is now, you mentioned a lot of these funds are crypto-native and these are huge funds. However, what’s keeping some of the traditional funds from moving into the crypto sector? Do you feel it’s more to do with infrastructure where the custodial framework just isn’t quite sure yet, or is it still a regulatory aspect?
You mentioned the inability to tweak the legacy infrastructure of incumbent custodians and private brokerages for crypto. Will incumbent custodians and private brokerages be at a large disadvantage because of that legacy infrastructure relative to players such as Coinbase Prime who have had a head start?
How will crypto exchanges be regulated? You mentioned there is a significant difference in terms of how they’ll be regulated in the US and in Asia and in Europe. How do you think about that difference across the board?
I get the sense the crypto exchange industry is on its way to being regulated like a bank. What do you think about these other exchanges? Are they approaching it in the same manner? Is Coinbase prepared for this move or do you think that it will have enough time once this has actually moved into law in 3-5 years to either acquire a bank or go after a bank charter itself?
Due to fee compression, many crypto exchanges are moving beyond trading fee-type revenues. You referenced Coinbase trying to push more into lending and that is necessarily classified as a security due to the manner in which it was approaching it. What types of businesses could crypto exchanges become involved in with that banking licence and its accompanying regularity clarity? Should we consider that a significant positive for the long-term sustainability of these businesses if trading fees compress as they did in the traditional equities markets?
What is your long-term outlook for trading fees? There has been the emergence of Robinhood and other players that provide zero-commission trading in the public equities market. Do you think this will be the reality for crypto exchanges, and what would enable that? Is payment for order flow at all prevalent in the crypto market, or could it be?
Do you think Coinbase can continue to hold this premium trading fee pricing its enjoyed for so long for much longer or is it likely to have a downward trajectory? Obviously, you were just saying that it’s shifting the flow a little bit.
FTX’s fees are two basis points for the taker, seven basis points for the maker. What effect does that unbelievably low pricing have on the exchanges? Is there enough demand for these assets? I suppose it’s subject to where the app is available. For example, I don’t think FTX is available in New York. Until that regulatory clarity comes out where these apps are available everywhere and the trading aspect is commoditised, do you expect FTX having such a low fee for everything being at all an impact? How might that impact the broader industry?
Which exchange in the US – considering Coinbase, Gemini, Binance.US and FTX in certain areas – do you feel is best-positioned for product expansion? For example, Coinbase is pushing into NFTs [non-fungible tokens] and there’s this lending aspect which will require a bank licence. Who is best-positioned in the event where the market becomes stagnant and that volatility is gone?
Who do you think is best-positioned to win the race to become a global financial entity, considering marketplace activity?
You mentioned Crypto.com, and I find the company interesting, especially with it acquiring the naming rights to what was formerly the Staples Center in Los Angeles. How does the company fit in the competitive landscape? How is it positioned relative to peers? I don’t think I’ve met a single person that’s ever used it as their crypto exchange.
I felt Coinbase had a foothold with Coinbase Prime in institutional crypto. Do you think that dominance is sustainable? For example, it acquired Xapo for custodial capabilities and that helped it. My understanding is that now institutions are moving toward other offerings such as FTX, Galaxy, Copper and others.
What risk do DeFi and decentralised exchanges pose for Coinbase and other leading centralised exchanges, and how might they respond with products? For example, I know Coinbase launched Coinbase Cloud for developers. How might this play out in the longer-term?
What do you think of Silvergate, its Silvergate exchange network and Signet? How do you think about the relative positioning of Silvergate and Signature Bank in crypto, and who is set up better for future success?
Which player do you feel is best-positioned for expansion opportunities? How do you think about Silvergate and Signature Bank rolling out their own stablecoin to directly compete with players such as Circle or Diem, given that might be a stretch for the de facto crypto banks in the sector?
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