Key Points
- Founded in 2011, Kraken is the 4th largest cryptocurrency exchange on the globe in terms of volume.The outfit has a daily trading volume of $700 million and 1.5 million visits daily.Kraken also permits trading in derivatives, thanks in part to its multi-collateral wallet.
The History of Kraken: What to Know
Cryptocurrency has seen rocky days, but it also seems like it’s here to stay. Since the first Bitcoin block was mined in 2009, people have been looking to trade their digital currencies through various exchanges. Kraken, founded in 2011, is one of the earliest and largest exchanges around. Since its inception, it has grown to be one of the biggest exchanges in the world, currently sitting at the fourth-largest by volume.
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Today, as one of the big players in the game, Kraken has a few distinct offerings and a lot of options for users. We are going to explore the history of the company, how it was founded, and what they offer to customers. Let’s get started.
The Founding of Kraken: How it Happened
Kraken was founded by Jessee Powell in 2011 after a visit to the Japanese exchange Mt. Gox soon after their security breach that same year. After exploring the company, Powell realized the potential for a competitor, especially if Mt. Gox were to cease operation, leaving a massive market behind. At the time, Mt. Gox was handling over 70% of all bitcoin transactions globally.
Soon after the trip, Powell began working on the basics of what this new bitcoin exchange would be, officially founding the company that year. Only three years later, in 2014, Mt. Gox would permanently close after filing for bankruptcy when it reported the loss of hundreds of thousands of bitcoins. With the largest bitcoin exchange down, Powell’s prediction of a vacuum came true, and Kraken was ready to step in.
At the onset, Kraken offered bitcoin, litecoin, and euro trades. In September 2013, Kraken officially launched its platform (after two years of internal testing) and began operation. Within a few years, millions of dollars of investment money came pouring in, giving It the resources to expand and dominate the early market that was cryptocurrency. Additionally, the company began to acquire other companies to provide better services to users, creating a large platform that was competing at the highest level with other crypto exchanges.
Currently, Kraken has expanded its offerings, has established consistent revenue and is the fourth largest crypto exchange in the world by volume.
Kraken Through The Years
2011-2013
Kraken was founded in 2011 after Jesse Powell visited Mt. Gox, the world’s largest bitcoin exchange at the time. Upon realizing the potential for Mt. Gox to cease operation, Powell began creating and testing a crypto exchange created by him, naming it Kraken. When Mt. Gox closed in 2014, leaving 70% of all bitcoin trades globally up for grabs, Kraken was one of the original exchanges to take a share of the pie.
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In 2013, the official Kraken platform was launched, and two years of internal testing (from 2011) proved it to be ready and capable. At first, Kraken supported the exchange of bitcoin, litecoin, and euro trades, adding more as time progressed. During the same year, Kraken announced it had joined the Committee for the Establishment of the Digitial Asset Transfer Authority (DATA), a committee that is intended to act as the regulatory body for the growing digital asset market.
2014-2015
After the initial trading years, Kraken began a round of Series A investing, receiving $5 million from Hummingbird Ventures, as well as funding from Trace Mayer and Barry Silbert of the Bitcoin Opportunity Fund.
In 2014, Kraken was listed on the Bloomberg Terminal, making it one of the earliest crypto listings so far.
In 2015, Kraken opened a “dark pool”. Dark pools are trading pools that aren’t visible to the rest of the market, allowing large firms, investors, and traders to anonymously place buy or sell orders.
2016
In 2016, Kraken began rounds of Series B funding and began its first official acquisition.
The acquisition of Coinsetter, a New York-based trading platform, marked an important milestone for Kraken as they were previously unable to trade in the state due to licensing. Instead of applying for licensing, the company’s acquisition allowed for immediate trading in 37 states and all Canadian residents.
A short time later, the Series B rounds of funding brought firms such as SBI Investment, a Japanese venture capitalist fund.
Later that year, Kraken also acquired the Dutch exchange CleverCoin and Glidera, a crypto wallet platform.
2017-2019
In 2018, Kraken went down for 48 hours after an upgrade that was supposed to only take two hours malfunctioned. Later that year, the company announced it would close its offices and services in Japan, citing increased costs of doing business.
In May of 2019, Kraken sued 10 previous employees, requesting the identities of anonymous reviewers from Glassdoor, an employee review site. Around the same time, the company announced an additional 13.5 million in funding from BnkToTheFuture.
2020-Present
In a landmark event, Kraken received a Special Purpose Depository Institution charter (SPDI) in Wyoming, becoming the first cryptocurrency exchange to do so. The SPDI charter allows banks to hold digital currencies alongside standard fiat currencies. SPDI banks in Wyoming are required to hold reserves backing 100% of the cryptocurrency on deposit, allowing anyone to remove their assets at any moment. This charter spurred the creation of Kraken Bank, the first regulated American bank to provide comprehensive deposit-taking custody and fiduciary services for digital assets.
In 2020, the company announced another round of investing, backed by a valuation of over $20 billion. Tribe Capital, a large venture capital fund, then became the second-largest institutional investor behind Hummingbird Ventures.
The company’s mobile app was released for international users in January of 2021, becoming available for US users in June.
What are the Most Important Products From Kraken?
Cryptocurrency exchange
Kraken is built around exchanging cryptocurrencies. When the company was founded in 2011 and went live in 2013, the primary service the company provided was the exchange of bitcoin. Today, the company has expanded its supported currency numbers, and it currently sits around 110. This number is flexible, however, and they often add more. Using Kraken, you can exchange fiat for cryptocurrencies (using USD to buy BTC) or convert cryptocurrencies to other cryptocurrencies (using ETH to buy BTC).
Exchanging crypto is the bread and butter of Kraken, with an average trading volume of over $700 million every 24 hours. Additionally, the Kraken exchange has over 1.5 million visits weekly and is the fourth most popular centralized exchange in the world by volume.
Trading
Similar to the crypto exchange, Kraken also offers the ability to trade in derivatives. Instead of spot trading (buying and selling cryptos), derivative trading allows for things like options, puts, calls, and futures. Part of what makes this process simple is their multi-collateral wallet. Using the multi-collateral waller, a user can open a position on DOT or ETH using USDT or BTC as collateral and never having to initiate an actual trade. Additionally, a user can receive profits from crypto-assets like BTC.
Staking
Staking is the process of placing crypto assets into pools and receiving rewards in proportion to the volume and time the asset is staked. Kraken offers staking on around 20 different crypto assets, some with as much as 23% APY.
How Does Kraken Make Money?
Kraken has multiple products and multiple streams of income from the various products. The most common way that large exchanges make money is through fees associated with trading. The company has a rolling fee that decreases in association with a user’s 30-day volume. Their base fee for users trading between $0 and 50,000 is 0.16% and 0.26% (makers and takers, respectively). Additionally, The company offers account management for advanced clients, of which they take a percentage of profits.
In 2021, Kraken reported $25.7 million in revenue.
Kraken Acquisitions
Coinsetter – 2016: Undisclosed
Kraken acquired Coinsetter, an American company, in 2016. Coinsetter was a New York-based crypto exchange founded in 2012. The purchase of Coinsetter allowed Kraken to enter the New York market, where they had previously been barred on account of a lack of permitting.
Cavirtex – 2016: Undisclosed
Kraken acquired Cavirtex, a Canadian company, in 2016. Cavirtex was a Canadian-based crypto exchange founded in 2011. The purchase of Cavirtex allowed Kraken to further expand and enter the international market of Canada.
Clevercoin – 2016: Undisclosed
Kraken acquired Clevercoin, a Dutch company, in 2016. Clevercoin was a Dutch-based crypto exchange founded in 2013. The purchase of Clevercoin allowed Kraken to become one of the dominant traders of bitcoin in Europe and further increased its customer base.
Glidera – 2016: Undisclosed
Kraken acquired Gildera, an American company, in 2016. Gildera was a Chicago-based crypto wallet that allowed the purchasing of crypto directly into a customer’s wallet. The purchase of Gildera allowed US Kraken users to directly add funds to their wallets and hold digital assets without a secondary software or service.
Cryptowat.ch – 2017: Undisclosed
Kraken acquired Cryptowatch, an APAC-based company, in 2017. Cryptowatch is a market charting platform that provides real-time information on digital assets, particularly cryptocurrencies. The purchase of Cryptowatch allowed Kraken to provide users with real-time market data and provide a more comprehensive experience while purchasing assets.
Picks & Shovels – 2019: Undisclosed
Kraken acquired Picks & Shovels, a San Fransisco-based company, in 2019. Picks & Shovels make tools for investors and traders to better manage assets. The purchase of Picks & Shovels allowed Kraken to offer spot and futures trading on varying crypto assets.
Crypto Facilities – 2019: Undisclosed
Kraken acquired Crypto Facilities, a London-based company, in 2019. Crypto Facilities allows users in the UK to futures on varying cryptocurrency pairs. The purchase of Crypto Facilities allows Kraken users to access spot and futures trading for up to six pairs.
Bit Trade – 2020: Undisclosed
Kraken acquired Bit Trade, an Australian-based company, in 2020. Bit Trade allows Australian users to trade cryptocurrencies. The purchase of Bit Trade expanded Kraken’s market reach into Australia.
Kraken Notable Controversies
New York Investigation
In 2018, New York began an investigation into cryptocurrency exchanges to look for signs of market manipulation and money laundering. After an investigation, Kraken was told by the New York Attorney General’s Officer that they were potentially in violation of the law:
Kraken’s response was to call the claim hostile, and that crypto scams were common in the area, essentially saying that Kraken was being singled out without due cause. The final result was the Attorney’s office officially stating that Kraken, along with other crypto exchanges, were potentially violating New York regulations.
Margin Trading
In September of 2021, the Commodity Futures Trading Commission announced that Kraken was to pay $1.25 million in fees for unregistered margin trading.
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