Kraken Exchange Unveils Plan To Launch Bank Amid Regulatory Crackdown

[Hydrogen]

Amid the several downturns in the crypto market, including the Silvergate fallout and regulatory crackdown, the U.S.-based cryptocurrency exchange Kraken has unveiled its plans to launch a banking institution.

This was revealed by Marco Santori, Kraken’s Chief Legal Officer, in a podcast with The Block. This update comes when the crypto industry is experiencing a downtrend due to negative news from Silvergate and several backlashes from regulators.

Kraken To Launch Its Own Bank

Marco on the Scoop Podcast says a plan to launch the first industry-focused bank is coming. The chief legal officer added:

Kraken Bank is very much on track to launch, very soon, We’re going to have those pens with the little ball chains. We’re going to order thousands of them and attach them to the desks of Wall Street banks everywhere. With our logo.

The upcoming bank to be launched by Kraken has raised speculation among the community on whether a bank originating from the crypto sector can be trusted even after the crash of the once-known largest crypto exchange FTX.

Its collapse has negatively affected the confidence in the nascent sector. The mismanage customer funds from the founder and the CEO, also known as Sam Bankman-Fried (SBF), led to the exchange’s downfall.

In addition, the Silvergate exchange network in the crypto industry has been compromised, as this financial institution questioned its capacity to continue operating; Santori said Kraken’s relationship with banks has the exchange talking with diverse “groups of banks around the world.”

Adding that an increasing caution on banking around the crypto sector could hinder innovation within the ecosystem. “We’re returning to an era where banks are very cautious about what accounts they open,” said Santori while adding:

Wall Street is going to be fine. Kraken and Coinbase are going to be okay. But for the guy or gal who has a new idea about how to provide infrastructure to the crypto economy, it’s going to be a really tough road over the next few years for them. No question.

Kraken’s Recent Saga With The SEC

Notably, this news comes after Kraken’s recent conclusion with the Securities and Exchange Commission (SEC). Earlier this year, the SEC charged the crypto exchange with violating security laws via its staking service.

The US regulator charged the Kraken crypto exchange subsidiaries, Payward Ventures Inc and Payward Trading Ltd, over the failure to register the crypto exchange staking-as-a-service program.

However, months later, Kraken agreed with the SEC to pay a fine of $30 million in disgorgement, prejudgment interest, and civil penalties to cease the crypto asset staking program.

Regarding the staking program, which is now shut down, Santori noted that staking was a small percentage of Kraken’s revenue. “It does, of course, affect pretty dramatically our product mix in the U.S.,” said Santori.

The executive claimed that the SEC’s accomplishment in making the exchange shutdown its staking program will only push American customers who want staking services offshore to riskier exchanges. Santori concluded:

It’s really indicative of a pretty unfortunate situation here stateside. We’ve got a regulatory environment that is essentially forcing users off to use offshore exchanges that will gladly accept their business with so little as a VPN.

Meanwhile, the crypto market hasn’t reacted significantly to Kraken’s announcement of the upcoming crypto bank. The global cryptocurrency market capitalization has continued in a downtrend, down by nearly 1% in the last 24 hours, with a value of $1.073 trillion.

https://bitcoinist.com/kraken-crypto-exchange-unveils-plan-to-launch-bank/

....


It appears kraken may be willing to fill whatever vacuum of banking services is left in the wake of silvergate's departure from the market. If they're able to follow through with their plans, they should be able to service many of silvergate's prior clients. Without a market disadvantage of having a big hole in their balance sheet from FTX fallout.

Many are fond of saying "you can't beat the house, they have all of the advantages". Banks and banking services definitely qualify as "the house". Under normal circumstances they trend towards being very profitable and low risk ventures. Kraken probably stands to make good money, if they are able to fill whatever void is left behind by silvergate's departure.

Following is an interesting excerpt:

The executive claimed that the SEC’s accomplishment in making the exchange shutdown its staking program will only push American customers who want staking services offshore to riskier exchanges. Santori concluded:

It’s really indicative of a pretty unfortunate situation here stateside. We’ve got a regulatory environment that is essentially forcing users off to use offshore exchanges that will gladly accept their business with so little as a VPN.

Meanwhile, the crypto market hasn’t reacted significantly to Kraken’s announcement of the upcoming crypto bank. The global cryptocurrency market capitalization has continued in a downtrend, down by nearly 1% in the last 24 hours, with a value of $1.073 trillion.[/size]

If the crypto sector is worth $1.073 trillion. A bank which can potentially profit even 1% of cryptos total market cap could potentially profit $10 billion. Potential profits being large numbers, I'm surprised more financial institutions aren't beating down the door to acqure silvergate's pie slice of the crypto world.

Silvergate itself being a multi billion dollar enterprise, there's no guesswork or reinventing the wheel. All someone would have to do is replicate their business and raise standards to avoid the type of catastrophe which occurred at FTX. Perhaps that's not as easy as I think it is?

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[NotATether]

There is something I want to point out in your post:

The executive claimed that the SEC’s accomplishment in making the exchange shutdown its staking program will only push American customers who want staking services offshore to riskier exchanges.

We've been warning about governments trying to interfere with mining for quite some time, and if Kraken was indeed running a staking pool for ETH (I do not remember the exact details), then that means Proof of Stake is much more vulnerable to government interference, not in the form of 51% attacks, but in forced shutdowns, that allow other malicious entities to take over the staking power that was left behind.

[Husires]

If they manage it properly, I think that the regulators will be less stringent, given that the banks will be directly subject to oversight and supervision from the government, and then the platform will not be able to dodge much, and investors may be reassured after what happened with Silvergate.
If cryptocurrencies succeed in being used by more than 20% of the population, many CEXs will disappear and turn into banks that transfer bitcoins to local cash.

Just hope Kraken management is not as chaotic as FTX.

[EarnOnVictor]

It's a free world and I believe Kraken has all it takes to add banking services to its cryptocurrency projects. Obviously, it's good to diversify if there are enough resources, it's a way to gain more from different branches. We might never know if their project will add value to crypto banking as there are many things lacking with Silverglade and others, and I believe that Kraken could use its exchange experience to make it more suitable. E.g Transaction fees, Interest on loans and others.

[adaseb]

If they manage it properly, I think that the regulators will be less stringent, given that the banks will be directly subject to oversight and supervision from the government, and then the platform will not be able to dodge much, and investors may be reassured after what happened with Silvergate.
If cryptocurrencies succeed in being used by more than 20% of the population, many CEXs will disappear and turn into banks that transfer bitcoins to local cash.

Just hope Kraken management is not as chaotic as FTX.

Kraken has been out for years. They are one of the oldest exchanges, only exchange older is perhaps Bitstamp. They have been thru many bear markets and came out alive anytime. How long has FTX been in business? Since 2019 or so.

Not only that SBF himself also was new to crypto, he started maybe in 2017 or so. Didn't go thru many bear markets. Hence he leveraged himself because he didn't think it was possible for altcoins go undergo -99% and hence why this implosion happened.

[serveria.com]

Amid the several downturns in the crypto market, including the Silvergate fallout and regulatory crackdown, the U.S.-based cryptocurrency exchange Kraken has unveiled its plans to launch a banking institution.

This was revealed by Marco Santori, Kraken’s Chief Legal Officer, in a podcast with The Block. This update comes when the crypto industry is experiencing a downtrend due to negative news from Silvergate and several backlashes from regulators.

Kraken To Launch Its Own Bank

Marco on the Scoop Podcast says a plan to launch the first industry-focused bank is coming. The chief legal officer added:

Kraken Bank is very much on track to launch, very soon, We’re going to have those pens with the little ball chains. We’re going to order thousands of them and attach them to the desks of Wall Street banks everywhere. With our logo.

The upcoming bank to be launched by Kraken has raised speculation among the community on whether a bank originating from the crypto sector can be trusted even after the crash of the once-known largest crypto exchange FTX.

Its collapse has negatively affected the confidence in the nascent sector. The mismanage customer funds from the founder and the CEO, also known as Sam Bankman-Fried (SBF), led to the exchange’s downfall.

In addition, the Silvergate exchange network in the crypto industry has been compromised, as this financial institution questioned its capacity to continue operating; Santori said Kraken’s relationship with banks has the exchange talking with diverse “groups of banks around the world.”

Adding that an increasing caution on banking around the crypto sector could hinder innovation within the ecosystem. “We’re returning to an era where banks are very cautious about what accounts they open,” said Santori while adding:

Wall Street is going to be fine. Kraken and Coinbase are going to be okay. But for the guy or gal who has a new idea about how to provide infrastructure to the crypto economy, it’s going to be a really tough road over the next few years for them. No question.

Kraken’s Recent Saga With The SEC

Notably, this news comes after Kraken’s recent conclusion with the Securities and Exchange Commission (SEC). Earlier this year, the SEC charged the crypto exchange with violating security laws via its staking service.

The US regulator charged the Kraken crypto exchange subsidiaries, Payward Ventures Inc and Payward Trading Ltd, over the failure to register the crypto exchange staking-as-a-service program.

However, months later, Kraken agreed with the SEC to pay a fine of $30 million in disgorgement, prejudgment interest, and civil penalties to cease the crypto asset staking program.

Regarding the staking program, which is now shut down, Santori noted that staking was a small percentage of Kraken’s revenue. “It does, of course, affect pretty dramatically our product mix in the U.S.,” said Santori.

The executive claimed that the SEC’s accomplishment in making the exchange shutdown its staking program will only push American customers who want staking services offshore to riskier exchanges. Santori concluded:

It’s really indicative of a pretty unfortunate situation here stateside. We’ve got a regulatory environment that is essentially forcing users off to use offshore exchanges that will gladly accept their business with so little as a VPN.

Meanwhile, the crypto market hasn’t reacted significantly to Kraken’s announcement of the upcoming crypto bank. The global cryptocurrency market capitalization has continued in a downtrend, down by nearly 1% in the last 24 hours, with a value of $1.073 trillion.

https://bitcoinist.com/kraken-crypto-exchange-unveils-plan-to-launch-bank/

....


It appears kraken may be willing to fill whatever vacuum of banking services is left in the wake of silvergate's departure from the market. If they're able to follow through with their plans, they should be able to service many of silvergate's prior clients. Without a market disadvantage of having a big hole in their balance sheet from FTX fallout.

Many are fond of saying "you can't beat the house, they have all of the advantages". Banks and banking services definitely qualify as "the house". Under normal circumstances they trend towards being very profitable and low risk ventures. Kraken probably stands to make good money, if they are able to fill whatever void is left behind by silvergate's departure.

Following is an interesting excerpt:

The executive claimed that the SEC’s accomplishment in making the exchange shutdown its staking program will only push American customers who want staking services offshore to riskier exchanges. Santori concluded:

It’s really indicative of a pretty unfortunate situation here stateside. We’ve got a regulatory environment that is essentially forcing users off to use offshore exchanges that will gladly accept their business with so little as a VPN.

Meanwhile, the crypto market hasn’t reacted significantly to Kraken’s announcement of the upcoming crypto bank. The global cryptocurrency market capitalization has continued in a downtrend, down by nearly 1% in the last 24 hours, with a value of $1.073 trillion.[/size]

If the crypto sector is worth $1.073 trillion. A bank which can potentially profit even 1% of cryptos total market cap could potentially profit $10 billion. Potential profits being large numbers, I'm surprised more financial institutions aren't beating down the door to acqure silvergate's pie slice of the crypto world.

Silvergate itself being a multi billion dollar enterprise, there's no guesswork or reinventing the wheel. All someone would have to do is replicate their business and raise standards to avoid the type of catastrophe which occurred at FTX. Perhaps that's not as easy as I think it is?

Very positive news, this one. And although it's not 2017 and banks (most of them) are not freezing customers' accounts for crypto-related transactions, it would still be nice to see a bank founded by crypto entrepreneurs and enthusiasts.

[Husires]

Not only that SBF himself also was new to crypto, he started maybe in 2017 or so. Didn't go thru many bear markets. Hence he leveraged himself because he didn't think it was possible for altcoins go undergo -99% and hence why this implosion happened.

I agree with you, but if there is a lesson that we are supposed to learn from the previous events, it is that there is no secure central platform, you do not know what is happening inside and therefore you cannot know if their situation is good or bad.
LBC platform has been operating for 10 years and has stopped, so everyone is exposed at some point to stopping.

Yes, there is no comparison between Kraken and FTX, but let's leave all possibilities available.

[pawel7777]

That's a bold move from Kraken and I wish them all the best. I consider them one of the good players in the crypto space.
But I don't think it'll be easy and they will likely face a lot of hoops on the way. The current fat cats in the banking sector have a powerful lobby and they're not very keen on any newcomers.

Here's the link to the source (podcast):
https://www.theblock.co/post/217294/krakens-chief-legal-officer-banks-are-shying-away-from-taking-on-crypto-customers

[wajik-tempe]

While it may seem like an easy task to replicate Silvergate's business model, there are several challenges that any new entrant would need to overcome. First and foremost, building a reputation and gaining trust in the crypto community would be a significant hurdle.
While the potential profits may be attractive, entering the crypto banking space is not a straightforward task, and there are several challenges that any new entrant would need to overcome to succeed.

[el kaka22]

Honestly, if they can do this, it would be a lot harder on regulations for sure. Banks are strict and they can't do much and they are forced to follow so many rules and laws and that means they are going to be basically stuck into this banking regulations so much that crypto may become a second hand business for them, and not their priority.

If they could somehow manage to do this and also get the attention of everyone at the same time without any worry at all, then I am not entirely sure if it will be anything bad at all, then it may end up being something much better and should be fine in the long run, can't say it wouldn't be really bad for crypto if they can achieve it.