Kraken is a centralized digital currency exchange platform, founded in 2011. It provides users with a platform for trading various digital currencies, intended to offer trading tools, user-friendly interfaces, security measures, and regulatory compliance features.^[5][6]

Overview

Founded in July 2011 by Jesse Powell, Michael Gronager, and Thanh Luu, Kraken launched in March 2013, initially offering Bitcoin, Litecoin, and euro trades. It later expanded its offerings to include additional currencies and margin trading.

In 2014, amidst the growing popularity of cryptocurrencies, Kraken, alongside the Coinbase exchange, was selected to provide market data for Bitcoin trading to the Bloomberg terminal, a testament to its growing influence in the industry.

Kraken allows trades in over 200 cryptocurrencies and offers over 600 cryptocurrency pairs. As of January 15, 2023, Kraken was listed as the world's third-largest cryptocurrency exchange.

Registered as a Money Service Business (MSB), Kraken achieved a significant milestone when its cryptocurrency exchange, Kraken Financial, became the first crypto company to obtain a bank charter.

Notable transitions include Michael Gronager's departure in 2015 to fully pursue Chainalysis and Jesse Powell's shift from CEO to Chairman in 2022, after a controversy.^{[7][8][9][10][11]}

History

Mt. Gox Assistance

In 2014, Mt. Gox, formerly Bitcoin's largest exchange, ceased operations due to undetected hackings, resulting in the loss of millions of dollars worth of customers' Bitcoins. This event left 850,000 bitcoins unrecovered, affecting 127,000 customers.

It was revealed that the exchange had accumulated a substantial debt of approximately 6.5 billion Japanese yen ($63.6 million). CEO Mark Karpeles faced legal consequences, arrested by Japanese authorities in 2015 on charges related to embezzlement and breach of trust.

In response, Kraken was selected to assist in investigating and distributing the remaining assets to creditors. Chosen through criteria such as operational reliability, customer service, and expertise, Kraken aimed to provide support during the crisis.

At a Tokyo meeting on February 18, 2016, it was reported that out of 9,863 individuals who filed Bitcoin-only claims, 7,952 were approved, with ¥12,583,717,791 JPY in Bitcoin distributed to creditors, while ¥27,547,026,403 JPY remained in reserve.^{[12][13][14][15][16]}

Obtainment of Bank Charter

In September 2020, Kraken Financial made history as the first cryptocurrency firm to secure a bank charter from the Wyoming Division of Banking, obtaining a special-purpose depository institution (SPDI) charter tailored for crypto businesses. Unlike traditional banks, SPDIs cannot loan customer deposits and are not required to obtain FDIC insurance, although they have the option to do so.

Kraken planned to offer various banking services, including cryptocurrency-based bill payments and salary receipts, with a digital-first banking model complementing its physical presence in Cheyenne, Wyoming.

“We’re thrilled to work in a state so aligned with our philosophy and values. Wyoming is a rare and shining example of how thoughtful regulation can drive innovation for FinTech companies.” - David Kinitsky (CEO of Kraken Financial, former Kraken Bank)^[8][17]

Kraken Entrance and Exit from Japan

Kraken announced the introduction of Bitcoin-to-Japanese yen (XBT/JPY) trading on October 30, 2014, alongside the launch of domestic JPY funding options for clients in Japan. Bitcoin-to-euro trading (XBT/EUR) had been available since Kraken's establishment in September 2013.

“Suspending services for Japan residents will allow us to better focus on our resources to improve in other geographical areas,” - Kraken announcement

However, Kraken later decided to withdraw its services from Japan due to escalating operational costs, as stated on April 17, 2018. Despite this move, the exchange indicated the possibility of resuming services in the future, emphasizing that the suspension only applied to residents within Japan.

In September 2020, Kraken expressed its excitement about reopening services in Japan, as part of its broader strategy to expand into high-growth Asia-Pacific (APAC) markets. This decision followed the exchange's entry into the Australian market through the acquisition of Bit Trade and the introduction of funding and trading in Australian dollars.

Despite these plans, Kraken announced the closure of its operations in Japan again, effective January 31, 2023. The exchange ceased cryptocurrency trading services through its Japanese subsidiary, Payward Asia, and deregistered from Japan's Financial Services Agency.^{[18][19][20][21][22]}

Kraken Limitations in Canada

Kraken suspended transactions involving Tether (USDT), Dai (DAI), Wrapped Bitcoin (WBTC), Wrapped Ether (WET), and Wrapped Axelar (WAXL) in Canada from November to December 2023.

This decision followed preceding Canadian regulatory changes and consultations with regulatory authorities. Similar actions had been taken by other exchanges in 2023.

Kraken aimed to uphold a quality trading experience for Canadian clients despite these suspensions. Transactions for the specified assets ceased on November 30th, followed by withdrawals on December 4th. The remaining assets were converted to U.S. dollars and credited to users' accounts by December 5th.^[23][24]

Products

Kraken Financial

Kraken Financial operates as a Special Purpose Depository Institution (SPDI), established and headquartered in Wyoming, USA, under Wyoming law. Functioning as a bank, it receives deposits and conducts incidental banking activities, such as custody, asset management, and servicing.

Unlike traditional banks, Kraken Financial operates exclusively through its online platform, aiming to provide clients with the security and services expected from regulated financial institutions while facilitating access to the digital asset ecosystem.

Deposits at Kraken Financial are not insured by the FDIC but are fully reserved under Wyoming law. Fiat deposits are backed by 100% or more of USD cash and high-quality liquid assets.

Furthermore, client assets are segregated from both Kraken Financial's and Kraken exchange's assets, with regular audits and examinations conducted by the Wyoming Division of Banking to ensure safety.^[17][25]

Kraken NFT Marketplace

Kraken introduced its NFT marketplace on June 8, 2023, offering a selection of over 250 collections. It provides a transaction experience without gas fees and had been in development for over a year, with the Beta having launched in November the year before, supporting Ethereum, Solana, and now Polygon NFTs.

The platform seeks to accommodate users of varying levels of crypto familiarity, accepting both fiat and cryptocurrencies. Presently, it integrates with MetaMask and Phantom wallets, with future plans for WalletConnect compatibility.^[37][38]

Kraken Pro

In December 2022, Kraken unveiled Kraken Pro, a suite of advanced trading tools and an updated interface that aims to streamline access to spot trading, margin trading, staking, and portfolio management. Geared towards experienced traders, Kraken Pro utilizes cutting-edge technology to minimize latency and handle high demand, supporting over 210 coins or tokens.

The redesigned user interface prioritizes trade execution, advanced order management, and analytical tools, with the goal of improving efficiency in advanced trading and portfolio management. Its modular design offers customization options for users.^[39]

Ventures

Kraken Funding

Funding Round	Date	Amount Raised	Investors
Late Venture Capital[VC]	February 2022		- Investbridge Capital- Andra Capital- Venture Garage- SBX Capital- Raison Asset Management- Skyvision Capital- 2bgc- Crosesell
Growth Equity VC	April 2021		RIT Capital Partners
Series C	February 2019	$100 M	- Hummingbird Ventures- Digital Currency Group (formerly Bitcoin Opportunity Fund)
Series A	March 2014	$5 M	- Pamir Gelenbe- Meni Rosenfeld- Jimmy Furland- Trace Mayer- Kevin Bombino- Trammell Ventures
Series A	March 2012	$5 M
Seed	June 2011	$1.5 M	- Jesse Powell- Blockchain Capital- Roger Ver

A total of $112 M was raised from all the funding rounds.^[4]

Kraken Investments

Funding Round	Date	Amount Raised	Organizations
Initial Coin Offering	July 12, 2022	$100 M	Gnosis
Series D	December 15, 2021	$350 M	Anchorage Digital
Venture	November 18, 2021	$4 M	Blockchain Association
Series A	October 8, 2021	$19 M	Chingari
Series B	September 21, 2021	$155 M	Blockdaemon
Series A	September 9, 2021	$8 M	Rocket Dollar
Series A	August 5, 2021	$21 M	Messari
Series A	July 28, 2021	$64 M	Prime Trust
Series B	August 3, 2020	$3 M	Wyre
Grant	June 25, 2020	$150 K	BTCPay Server

^[3]

Acquisitions

Kraken has acquired the following companies:^[1]

• Staked us
• Bit Trade
• Circle Trade
• Picks & Shovels
• CryptoFinance.ai
• CryptoFacilities
• Cryptowatch
• Glidera
• CleverCoin
• Coinsetter

Controversies

New York Attorney General's Office

In 2018, the New York State attorney general raised concerns about the legality of operations at the Kraken cryptocurrency exchange. Barbara Underwood, the then-attorney general, highlighted Kraken in a report examining the integrity of global cryptocurrency exchanges, suggesting potential unlawful conduct.

The report scrutinized various aspects of the exchanges, including their business practices, trading policies, conflict management, security measures, and handling of consumer funds.

Kraken's inclusion in the report stemmed from its decision to cease operations in New York in 2015, citing objections to the state's regulatory framework, particularly the BitLicense requirements. Despite Kraken's non-participation, the report advised caution when engaging with platforms unable to address the issues raised.^[26][27]

Glassdoor Review Lawsuit

In January 2019, Kraken reportedly laid off over 50 employees, prompting negative reviews on Glassdoor. Kraken's parent company, Payward, sued Glassdoor to reveal the reviewers' identities, alleging a breach of severance agreements. A California court ordered Glassdoor to comply.

The Electronic Frontier Foundation criticized Kraken's actions, stating it aimed to silence employees. The EFF argued against the subpoena, citing lack of specificity and violation of California law protecting freedom of expression. Despite one individual deleting their reviews, the lawsuit's intent was seen as deterring others from sharing opinions.^[28][29]

“In the cryptocurrency industry, security and reputation are paramount. Like its peer companies, Kraken uses confidentiality and severance agreements to protect the platform's security and its reputation. In those agreements, each side receives something. The former employee at issue here would like to benefit from the agreement without upholding his or her side of the bargain. We welcome employee feedback, but we won't tolerate double-dealing.” - Jesse Powell

Commodity Futures Trading Commission Dispute

The Commodity Futures Trading Commission (CFTC) initiated proceedings against Kraken, asserting that the exchange facilitated margined digital asset transactions for ineligible U.S. customers from June 2020 to July 2021.

The CFTC emphasized the necessity for margined, leveraged, and financed digital asset trading to occur on properly registered and regulated exchanges, in compliance with all pertinent laws and regulations.

As a resolution, Kraken consented to pay $1.25 million in penalties. Additionally, the CFTC cited Kraken for its failure to register as a futures commission merchant.^[30]

Office of Foreign Assets Control Dispute

Kraken settled with the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) over alleged violations of sanctions against Iran in 2022. The settlement involved Kraken paying around $362,000 in fines and investing an additional $100,000 in sanctions compliance controls.

OFAC found that Kraken processed 826 transactions for Iranian users from October 2015 to June 2019, despite having controls to prevent users in sanctioned jurisdictions from opening accounts. This agreement came amid increased regulatory scrutiny of the cryptocurrency sector.^[31]

Work Environment Controversy

In June 2022, former Kraken's CEO, Jesse Powell, sparked controversy by questioning the use of preferred pronouns, discussing racial terminology, and challenging gender-related stereotypes during employee interactions.

This ignited internal discord among Kraken's workforce, with some employees openly criticizing Powell's remarks as hurtful and divisive. Others accused him of fostering a hostile work environment and affecting their mental well-being.

Following the incident, Kraken published a culture statement emphasizing its commitment to a "crypto-first culture," which prompted further debate. Powell asserted that those who disagreed with the company's stance could choose to leave and participate in a program offering four months' pay.

Despite internal tensions, Kraken's leadership indicated a firm stance on maintaining its culture, up until Powell resigned from the CEO position later the same year.^[32][33]

“People get triggered by everything and can’t conform to basic rules of honest debate. Back to dictatorship.” - Jesse Powell

SEC Dispute

In November 2023, the U.S. Securities and Exchange Commission (SEC) charged Kraken with allegedly operating its trading platform as an unregistered securities exchange. The SEC accused Kraken of facilitating the buying and selling of crypto asset securities without proper registration, potentially depriving investors of essential regulatory protections. 
The SEC's complaint outlined Kraken's activities since September 2018, alleging that the exchange conducted functions typical of securities exchanges, brokers, dealers, and clearing agencies without proper registration.

In May 2023, Kraken testified before congressional committees, advocating for clearer regulatory guidelines in the digital asset industry. Kraken argued for laws tailored to digital assets' unique characteristics and expressed concerns about the SEC's jurisdiction.

Eventually, Kraken agreed to cease offering securities through its crypto staking services and staking programs and agreed to pay a $30 million civil penalty.

On February 22, 2024, Kraken filed a motion to dismiss the SEC's lawsuit, claiming that the SEC's claims lacked evidence of fraud or consumer harm.^[34][35][36]