Kraken founder and Chief Executive Officer Jesse Powell says the cryptocurrency exchange is working on a non-fungible token marketplace that could appeal to customers who want to do more than just collect digital art.
According to Powell, the marketplace would provide custody services and the exchange is considering a system where customers can use their NFTs as collateral to borrow funds against.
“If you deposit a CryptoPunk on Kraken, we want to be able to reflect the value of that in your account. And if you want to borrow funds against that,” Kraken is working on a system to determine the liquidation value of the NFT deposited, he said in an interview with Bloomberg News.
To Powell, who founded Kraken in 2011, this year will go down in the industry’s history as the year non-fungible tokens finally made it into the mainstream.
The crypto ecosystem has seen a flood of new participants this year. And for many of them — from retail investors to corporate brands — their introduction into cryptocurrency has been through non-fungible tokens.
“It’s kind of shocking. For the first 10 years of Bitcoin we were trying so hard to sell people on why they should be interested in Bitcoin,” said Powell, explaining that the concept for NFTs existed in the early days of crypto when developers proposed “tagging” parts of the Bitcoin blockchain with metadata. “I guess it took the right combination of events, something really popular like NBA Top Shots that really got people talking about it.”
Although non-fungible tokens spent most of 2021 as collectors’ items and perhaps a way for people who got rich off their cryptocurrency gains to show off a very expensive Twitter profile picture, Powell is expecting the use cases for the tokens to grow next year.
“Phase one was speculation, phase two is buying art and supporting artists, phase three is going to be functional uses of NFTs,” said Powell. Using deposited NFTs as collateral on Kraken could be one of those uses, he said.
The push comes as larger competitors including Binance and FTX Exchange have already launched NFT marketplaces, while millions have signed up for Coinbase Global Inc.’s NFT waitlist. Kraken said its looking to enter the NFT space early next year. Adding to the competition is OpenSea, one of the largest marketplaces for non-fungible tokens, though that company does not custody assets.
While Kraken nearly doubled its customer base in the past year to 8.5 million, it’s still dwarfed by its larger peers. On Thursday, 24-hour trading volume on Binance’s spot exchange stood at around $18 billion at one point, while Coinbase’s was roughly $3.7 billion. Kraken saw about $1 billion in trading activity in the same time period, according to CoinmarketCap data.
The amount is still a significant increase from prior years. Trading volume on Kraken jumped 420% year-over-year as tokens including Bitcoin and Ether reached record highs and some meme-coins notched 5-digit returns.
In November, Kraken’s announcement that they would list the Shiba Inu meme-coin — after initially holding off from listing — sent the token up 30% in one day. According to Powell, the exchange places tokens on a “short list” before deciding to list a coin.
Tokens can land on the list for several reasons, like if they’re part of a new project that’s about to launch or if Kraken’s technical developers flag it. The exchange also takes customer interest into account whether deciding to place a coin on the short list.
“It could get there if we’re getting a ton of requests from customers, or Elon’s tweeting about it,” Powell said.
From there, the coin heads to a review committee made of lawyers, analysts, and engineers that assess how to classify the token, and determine the legality behind listing the coin in various regions.
For Powell, the decision to list the Shiba-Inu token was heavily rooted in customer interest.
“There’s not incredibly interesting new technology there or anything, it’s just largely community-driven interest. It’s basically a meme-coin that has the community’s attention and sometimes you have to just list those,” said Powell.