How Booming Exchanges are Prepping for a Bear Market

Now is the time for crypto companies to focus on the infrastructure and services that will be essential in supporting the next bull run, said Brian Hoffman, Kraken’s crypto platform lead.

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BRIAN HOFFMAN, PLATFORM LEAD, KRAKEN

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key takeaways

  • Bitcoin’s record run in 2020, which extended into 2021, sent exchanges’ volumes and revenue soaring
  • Coinbase revamped prime brokerage while Kraken is rolling out parachain auctions

Crypto may be in the midst of a significant selloff, but for exchanges, this is the time to innovate. 

“There’s going to be a bear market at some point, and everything will be down, people will be less interested in volume,” said Brian Hoffman, Kraken’s crypto platform lead. 

“And that’s the time where you’re really building the foundation for the next cycle.” 

Bitcoin’s record run in 2020, which extended into 2021, sent exchanges’ volumes and revenue soaring. During the first quarter, crypto exchange Kraken processed more than $160 billion in trading volume, 58% more than its volume for all of 2020.

“Kraken is obviously doing really well in this market, I think everybody is,” said Hoffman. “As the saying goes, even a baked potato could make money in this market. It’s not that hard.” 

Coinbase reported record Q1 earnings earlier this month, but warned investors that a dip in crypto prices may lead to disappointing numbers going forward. 

“We seek to operate the company at roughly break even in terms of profitability, smoothed out over time, for the time being,” Coinbase said in its shareholder letter at the time of the earnings release. 

The company has since announced a revamp of its prime brokerage service, Coinbase Prime, in order to better serve institutional clients. 

Right now is the time for crypto companies to focus on the infrastructure and services that will be essential in supporting the next bull run, Hoffman said. 

“It’s a lot of infrastructure work, it’s a lot of building relationships with the projects and building those services so that when they come back around, we can scale ourselves,” he said. 

Kraken is also looking to expand services and will soon offer clients parachain slot auction services. 

Parachain slot auctions, or parachain auctions for short, allow developers to use cryptocurrencies Polkadot and Kusama to create new digital assets and decentralized applications (dapps) on top of the blockchain. Polkadot and Kusama are designed around the Parachain and Relay Chain blockchains. 

“There is this problem of scalability as the blockchains become popular,” said Hoffman. “What kind of technology are we going to build to allow everybody in the world to use it rather than just a couple thousand people?”   

The networks use parachain auctions to fairly determine which blockchains get to leverage the Kusama or Polkadot relay chains. 

Kraken has been working on this project over the past several years. It has already launched its very first parachain in a testing stage and will activate the options once developers are confident in the security.  

To Hoffman, the project is the next natural step for Kraken as blockchain technology continues to grow. 

“Our vision of where this is all going is that it’s just going to be a multi-chain world. And so Polkadot is just one example of several, for example Binance just launched their smart chain, which is their scalability solution and their community. There’s Mina coming out, Solana, which is closely related to FTX and their platform, they’re all doing their own scalability” 

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