What is the Valuation of Kraken?

Salomon Kisters

May 12, 2023

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Kraken is one of the earliest cryptocurrency exchanges. Founded in 2011 in the USA, the company started as a crypto exchange project meant to replace the infamous Mt. Gox.

Today, Kraken is a multi-billion company that has offices in several locations around the world. Kraken has recently announced a new CEO, Dave Ripley, as his predecessor, co-founder Jesse Powell, takes on the role of Chairman of the Board.

In this article, we’ll discuss Kraken in detail, shedding some light on its valuation.

Kraken: Quick Facts

• Kraken is one of the most popular exchanges where users can buy and sell cryptocurrencies, ranking in the top 3 by volume.
• It was also the first Bitcoin exchange to be listed on Bloomberg Terminal.
• Kraken has 9 million users from over 190 countries and a quarterly trading volume of $207 billion.
• The exchange was founded in 2011 by Jesse Powell in the United States and is headquartered in San Francisco. It has offices in 4 other locations.
• The exchange has two trading platforms: Kraken for beginners and Kraken Pro for advanced traders.
• It offers 7 Fiat currencies, 215 cryptocurrencies, and 644 trading pairs.
• Kraken refers to the ‘Kraken’ sea monster from Scandinavian folklore. This creature is likely an allusion to the giant squid, which is found in the Atlantic.

A Brief History of Kraken

Kraken was founded in 2011 by Jesse Power and Thanh Luu. Powell was a cybersecurity consultant working for Mt. Gox, which underwent a massive hack, resulting in compromised Bitcoin accounts and cryptocurrency theft. Jesse wanted to build another exchange as a replacement as he understood that Mt. Gox would cease to exist (which happened in 2014).

Kraken was launched to the public in September 2013 as a crypto exchange that offered BTC, LTC, USD, and EUR trading. The company later expanded its fiat currency and cryptocurrency offerings and introduced margin trades. Kraken allows its customers to trade cryptocurrencies with several fiat currencies including USD, EUR, JPY, GBP, and CAD.

Kraken Controversies

Since its inception, Kraken has encountered a number of controversies. Here is a list of some of the most notorious controversies surrounding the exchange:

Mt. Gox Bankruptcy Investigations: In 2014, Mt. Gox filed for bankruptcy, and Kraken was involved in the bankruptcy proceedings. However, the exchange was criticized for its slow handling of the process and a lack of communication with customers.

System Outages: Kraken has experienced several system outages, causing frustration among its users. The platform went out for four days in 2017, which prompted criticism of the platform’s infrastructure. It also experienced an Ethereum flash crash in 2022, causing the price of ETH to plunge by over 50%.

Regulatory Compliance: Kraken has faced scrutiny from regulatory authorities in several countries, including the United States and Japan. In 2018, the New York Attorney General’s office launched an investigation into Kraken and other exchanges for potential violations of state regulations.

Office Shutdowns: Recent layoffs have resulted in the closure of Kraken offices in Japan and the UAE.

These controversies highlight the challenges faced by cryptocurrency exchanges in maintaining secure, reliable, and compliant platforms for users. Despite these problems, however, Kraken remains a stable crypto exchange, having secured multiple funding rounds.

Kraken Funding

Kraken has successfully completed multiple rounds of funding since its inception in 2011. Here is a summary of the major funding cycles:

• Seed Round: In 2011, Kraken raised $118,000 in seed funding from investors including Trace Mayer, Roger Ver, and Barry Silbert.
• Series A: In 2014, Kraken raised $5 million in Series A funding led by Hummingbird Ventures.
• Series B: In 2016, Kraken raised $10.5 million in Series B funding led by a Tokyo-based venture capital firm, SBI Investment, with participation from Hummingbird Ventures and Digital Currency Group.
• Series C: In 2019, Kraken raised $13.5 million in Series C funding SBI Investment, with participation from other investors including Hummingbird Ventures and Blockchain Capital.
• Series D: In 2021, Kraken raised an undisclosed amount in Series D funding, led by NY-based investment firm, Paradigm. Other investors in the round included Fidelity, Tribe Capital, and General Atlantic.

What is the Valuation of Kraken?

The net worth of a business is determined by valuation. This estimate is based on the company’s net holdings (tangible and intangible assets) with respect to its expenses and liabilities. A higher valuation means that a company can secure more funding from potential investors who want a share of the equity.

Kraken has raised over $129 million in venture capital funding to date, which has enabled the company to expand its services, improve its technology infrastructure, and increase its regulatory compliance efforts. The platform is reported to be valued at 10.8 billion USD. In 2021, Kraken was reportedly seeking funding that would double its valuation to 20 billion USD.

Kraken’s funding is significantly less than that of two of its main rivals, Coinbase (USD 547 million) and FTX (USD 1.8 billion). The current estimate of a 10 billion valuation is less than the valuation of the publicly traded Coinbase in terms of market cap/revenue. Binance is another major rival for Kraken. It is the largest private exchange for cryptocurrency with a valuation close to 300 billion, 15 times that of Kraken!

Both Binance and Coinbase have been growing at the same pace as Kraken. However, Binance’s valuation is much higher at $300 billion, processing four times the trading volume of Coinbase.

What are the Unique Selling Points of Kraken?

• Wide Range of Fiat Currencies: Kraken offers 7 fiat currency deposit options, including USD, EUR, GBP, JPY, AED, CHF, and CAD. This is far more than what many other popular exchanges offer.
• 200+ Crypto Coins: Kraken offers 215 crypto coins and 644 trading pairs. This means that users have multiple options for trading.
• Security: Kraken has a strong focus on security and has never been hacked. As a centralized exchange, it requires KYC information for account creation.
• High Leverage: Kraken offers margin trading with up to 5x leverage on certain trading pairs.
• Trading Tools: Kraken has a comprehensive set of advanced trading tools and features for experienced traders.
• Transparency: Kraken has a transparent fee structure with competitive fees for both market makers and takers. Kraken also has a Proof-of-Reserve (PoR) system that verifies the ownership of its client’s liabilities.

What is Kraken’s Proof-of-Reserve System?

Kraken’s PoR system is an independent audit conducted by a third party that seeks to ensure that the platform holds the assets it claims on behalf of its clients. This auditor takes an anonymized snapshot of all balances held and aggregates them into a Merkle tree — a privacy-friendly data structure that encapsulates all client balances. From there, the auditor obtains a Merkle root - a cryptographic fingerprint that uniquely identifies the combination of these balances when the snapshot was created.

The auditor then collects digital signatures produced by Kraken, which prove ownership over the on-chain addresses with publicly verifiable balances. Lastly, the auditor compares and verifies that these balances exceed or match the client balances represented in the Merkle tree and that the client’s assets are held on a full-reserve basis.

In simple terms, Kraken’s Proof-of-Reserves system is a way for the cryptocurrency exchange to prove to its users that the platform holds all of its deposited assets. This is done through an independent audit that checks Kraken’s balances and verifies that they match the client’s balances.

What Account Types Does Kraken Offer?

Kraken offers two types of accounts to its users: basic and pro. These accounts are designed to meet the needs of traders with varying levels of experience and trading requirements.

Basic Account: Kraken’s basic account is designed for users who are new to trading or prefer a simpler interface. Basic accounts have lower trading fees than pro accounts but have limited access to advanced trading features. These accounts also have lower deposit and withdrawal limits compared to pro accounts.

Pro Account: Kraken’s pro account is designed for experienced traders who require advanced trading tools and features. Pro accounts have higher trading fees than regular accounts but offer access to advanced trading options, such as margin trading and futures trading. Pro accounts also have higher deposit and withdrawal limits compared to basic accounts.

In addition to these differences, Kraken Pro users can access a mobile trading app, while regular account holders can only use the Kraken website.

Final Word

Kraken is a versatile crypto exchange with a long history of trading and a strong market presence.

Launched only two years after the introduction of Bitcoin in 2011, it is widely considered one of the most established and popular cryptocurrency exchanges in the blockchain space today.

We hope this guide gives you a good idea about Kraken and its valuation of 10 billion USD.

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