Kraken CEO: Private Stock Tokens Are a "Terrible Idea"

Kraken's co-chief executive, Arjun Sethi, has drawn a sharp line between Kraken's tokenized stock business and its competitors, specifically criticizing Robinhood's approach. Sethi rejected the concept of tokenizing private company equity, calling it a fundamentally flawed and risky idea for investors. Referring to Robinhood CEO Vlad Tenev, Sethi stated, "The argument Vlad is using is flawed," and described the tokenization of private stocks as a "terrible idea."

Earlier this year, Robinhood faced backlash after launching tokenized representations of OpenAI shares in Europe, even though OpenAI had not authorized the offering. OpenAI publicly distanced itself from the product, clarifying that the tokens did not represent actual equity and warning that transferring ownership of OpenAI requires company approval. The controversy highlighted challenges like liquidity issues and resale restrictions, common in private company shares. Sethi emphasized that such challenges make tokenization in private markets particularly problematic.

In contrast, Vlad Tenev, the CEO of Robinhood, defended tokenized private equity during an interview with Bloomberg Wealth. He remarked, "A big tragedy is that private markets are where the bulk of the interesting appreciation and exposure is nowadays. It’s a shame that it’s so difficult to get exposure in the U.S." This reflects Robinhood's belief in democratizing access to private market opportunities.

Unlike Robinhood, Kraken has chosen a more cautious approach, restricting its tokenized equity offerings to publicly traded companies like Tesla, Apple, and GameStop. The platform currently supports 60 assets and plans to expand to 1,000 popular stocks. According to Sethi, this strategy avoids regulatory pushback while delivering value to global users. Kraken’s platform, xStocks, has reportedly surpassed $5 billion in trading volume, demonstrating the growing demand for tokenized public equities.

Each token on Kraken’s xStocks platform is backed one-to-one with the underlying equity, held by a regulated European custodian through a partnership with Swiss firm Backed Finance. The platform offers 24/7 trading across multiple blockchains like Solana, BNB Chain, TRON, and Ethereum, breaking away from traditional market hours. Users can also move holdings between platforms or store them in self-custody wallets, providing flexibility and convenience unmatched by traditional brokerage accounts. Sethi described xStocks as a foundational innovation, enabling people worldwide to "own and use a share of a tokenized stock like they would use money."

British users, however, face restrictions in accessing Kraken's tokenized stock platform due to the Financial Conduct Authority's (FCA) financial promotion regime introduced in 2023. Sethi compared UK crypto websites to cigarette packets carrying warnings, stating, "In the UK today, you see warnings equivalent to 'use this and you're going to die.'" The FCA requires platforms to display risk warnings, ban investment incentives, and enforce verification steps, processes Sethi criticized as counterproductive and detrimental to consumers due to the time-sensitive nature of trading.

The FCA defended its approach, emphasizing that the rules aim to ensure customers make informed decisions. A spokesperson highlighted that some consumers might realize crypto investing isn't suitable for them, which aligns with the rules' intent. The global regulator IOSCO has also expressed concerns about asset tokenization, citing ownership uncertainties and counterparty risks. Meanwhile, Kraken prepares for a potential New York listing and is reportedly seeking funding ahead of a potential 2026 IPO, aiming for a $15 billion valuation.