Kraken to release structured products for staking focused on institutional investors

Quick Take

  • Kraken is bringing out structured products that aim to produce a staking yield that’s attractive to institutions.
  • The products will be designed to minimize the exposure to the underlying cryptocurrency.

Crypto exchange Kraken is planning to release structured products focused on staking as part of a bid to enhance its existing offerings for institutional clients.

Kraken acquired a staking company called Staked late last year to move into the burgeoning market. The company is now seeking to combine its staking prowess with the trading services provided by its main exchange.

In an interview, Tim Ogilvie, head of Staked at Kraken, told The Block that the company will introduce structured products that are a variant on using staking and a derivative or futures product to achieve specific objectives. He said these products will be rolled out in the near future.

Ogilvie said the products are being referred to internally as cash, carry and stake, a strategy that sophisticated investors are already doing. The idea is you stake an asset and then sell a futures contract on the same asset.

This strategy lets investors capture the rewards generated by staking while mitigating exposure to the underlying cryptocurrency. “You basically eliminate the underlying currency risk to allow you to get just a yield,” he said.

But not only does this approach capture the staking rewards — which can range from 4-7% — it also can see extra yield as a result of going short on the asset, where a return can be seen from funding rates.

“And so until it's a US dollar-denominated yield that includes both staking rewards plus the sale of the future and Kraken was kind of uniquely positioned to be able to offer that because they own both a staking business and a future business,” said Ogilvie. He said returns last year on a trade of this type would have yielded around 11.5%. 

These structured products would be offered via Kraken and to its institutional clients. The clients will need to go through KYC and AML procedures to access them.

While now part of Kraken, Staked largely operates as a standalone business, treating the exchange as more of a priority client. Staked counts Pantera, Multicoin and Three Arrows Capital among its customers and runs nodes on 44 proof-of-stake blockchains. Its core business is offering staking directly to customers, alongside a white-label staking service to other exchanges and businesses.

Beyond these products, Ogilvie said Kraken will bring out liquid staking offerings, although wouldn’t provide any further details. Liquid staking is a way for staking services to free up the liquidity of tokens currently being staked.

Staking firms Figment and Blockdaemon are both working on bringing liquid staking to institutional investors.

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