Analysis: $6T Morgan Stanley vs. $40B Kraken; AI Layoffs Hit Fintech
A $266B bank and a $2B revenue crypto exchange just crossed regulatory lines.
Gm Fintech Architects —
Today we are looking at 2 burning topics:
Intelligently Artificial Employment: We analyze Block’s decision to cut roughly 40% of its workforce under the banner of AI productivity, placing the move in the broader context of tech’s cyclical restructuring. While the layoffs appear to reflect the narrative of an impending AI productivity singularity, where each worker becomes 2–3× more productive, current data suggests nearer-term gains of only 10–20%. These reductions also reflect market reality: firms like Block and Klarna have seen ~70% valuation declines as markets repriced fintech from high-growth SaaS multiples to financial-sector valuations amid higher interest rates.
Wall Street vs. Crypto Street: We examine the regulatory convergence between Wall Street incumbents and scaled crypto platforms, highlighted by Morgan Stanley’s OCC filing for a national trust bank to custody BTC, ETH, and SOL, and Kraken Financial securing a Federal Reserve master account via its Wyoming SPDI charter. We argue that these parallel regulatory milestones signal a structural merging of traditional finance and crypto rails, with fiduciary-grade crypto custody likely to compress spreads and reshape competitive dynamics.
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1. Intelligently Artificial Unemployment
Jack Dorsey’s payments company Block is firing 40% of its workforce, and doing it in the name of AI productivity improvements. While this news has already hit your feed, we can’t help but comment.
On its face, this is pretty scary stuff. Surely you have also seen this chart.
But we should also not look at this data on its face.
There is a strong Op-Ed in the New York Times today that highlights the playbook of a tech entrepreneur: look far out into the future and position the company toward where the future is headed. This means living in a reality that has not yet arrived.
In the case of most tech executives these days, the answer is to invoke some sort of AI productivity singularity, where each employee can become 2-3x more productive. The numbers show a more modest impact of 10-20% productivity increases. So you have to fast-forward through years of social and behavioral change to make the math work.
But also, cuts just make sense? Twitter lost 80%+ of its employees when Elon took over, and is still able to pay off its $17.5B in loans while maintaining pretty solid product performance. Entire multi-billion-dollar private equity strategies, like Bending Spoons, are organized around acquiring businesses with strong brands and loyal users, cutting 80% of the staff, focusing on core features, and retaining 80% of the revenues.
Remember that Klarna had also talked about this playbook — cutting 50% of employees to become an AI native firm. Or maybe it was just dealing with changing interest rate economics.
AI is the best excuse today to right-size these organizations after they have grown fat on Covid dollars. Whether or not AI is able to replace the product quality of a higher human workforce is almost beside the point. These companies survive regardless.
Both Block and Klarna have been punished as they moved from private to public markets by about 70%. Why? A combination of interest rate movements and re-pricing from SaaS growth multiples to being treated like a financial stock. This gravity is inevitable.
So saying that AI is the reason for layoffs may not be the full story.
Block, Klarna, and the rest have to attach themselves to a technology narrative, rather than a financials narrative, in order to compete. It is in their DNA to be disruptors and innovators. After losing marketcap in the public markets, the answer is often, unfortunately, layoffs.
Whether the robots fill in the gap or not is secondary. However, if you want to be in the remaining 50% of employees, learn to use the robots.
2. Wall Street vs. Crypto Street
We are seeing a convergence between the financial giants and scaled crypto upstarts. It is good to get a sense of scale.
Here is what is driving today’s comparison—