Kraken's Regulatory Breakthrough Enables Crypto-Collateral Derivatives Across EU

Kraken, one of the world's largest cryptocurrency exchanges, has expanded its derivatives offerings in the European Union by enabling traders to post crypto assets as collateral for trading perpetual futures. The move, announced via its MiFID-regulated platform, marks a significant step in the exchange's strategy to solidify its position as a leading provider of crypto-native derivatives in Europe. The initiative, which leverages Kraken's MiCA (Markets in Crypto-Assets) license under the Central Bank of Ireland, reflects the evolving regulatory landscape for crypto in the EU and underscores the growing institutional demand for crypto-collateralized trading options, according to The Block.

The Block reported that Kraken began rolling out derivatives in the EU earlier this year, initially supporting fiat collateral. However, the introduction of crypto collateral now aligns with broader regulatory engagement efforts. Alexia Theodorou, Kraken's Director of Derivatives, emphasized that the exchange worked closely with regulators such as Cyprus's CySEC and the European Securities and Markets Authority (ESMA) to address concerns around the classification and risks of crypto-native perpetual futures. "We spend a lot of time with the regulators... to ensure they're comfortable with the classification of what is a perpetual future," Theodorou stated.

The regulatory hurdles were significant initially. Theodorou noted that when Kraken launched its EU derivatives service in May, it could not offer crypto collateral due to the absence of a MiCA-compliant custodian. The recent launch of crypto collateral, however, is facilitated by Kraken's Irish entity, which now holds client assets under a regulated framework. The exchange also utilizes its UK-regulated Multilateral Trading Facility (MTF) to aggregate global liquidity for European clients, a strategy that differentiates it from competitors and enhances its market depth.

From a practical standpoint, the feature allows European traders to leverage crypto assets—such as Bitcoin and Ethereum—without converting them to fiat, reducing transaction costs and counterparty risks. Theodorou highlighted that Kraken applies variable haircuts to crypto collateral based on its volatility, a risk management measure designed to protect both the exchange and its users. Additionally, the platform automatically converts crypto collateral to USD for margin and liquidation calculations, a feature that Theodorou described as rare in the industry.

The move is expected to attract institutional clients, particularly crypto-native firms, which have long requested the option to use crypto collateral. Theodorou noted that such clients have driven "countless requests" for the feature, and the regulatory compliance in the EU may further boost liquidity on Kraken's order book. The exchange's ability to offer this under a European regulatory regime also aligns with broader trends of institutional investors seeking compliance-ready platforms for crypto derivatives.