Risks Assessment in DeFi and Crypto Finance

Transcript

[Music] thank you hey everybody so I'm Charles from SNP um I've been at SMP for around 11 years I've been in the defy team since his creation last year I'll explain a bit more what we're doing here at SNP with D5 and crypto Finance I've been in crypto since 2016 and I've been kind of an evangelist in the company since what I'm going to discuss here today is risk and the aspect of risk that is needed and how the assessment should be done in defying crypto Finance so when we look at all those companies that they

are pretty famous right now what did they all have in common when we look at Babel Voyager EXT what they really had in common was the lack of risk assessment around them the lack of risk management age led to everything that you're probably aware of uh in in the bear Market now I'll bring a lot of context before diving in the meter for the risk assessment and what is really needed and what we are doing first I want to show this so the left side graphic is something all of you probably know it's a defy and the size of the total value lock we had in D5 at the peak so D5 grown from 0 to 100 or 200 billion in just two years and if we compare that

with the asset under management of big Banks D5 could have been seen or would have had the size of one of the top 20 30 Banks so that's that's pretty big especially when we see the the lack of focus on risk that we had right in D5 was all about what is the yield if I can get 90 yeah let's just take it and if I get somebody giving me 20 yield and I don't really know where it's coming from well just go ahead and and go forward with it now for D5 to really go forward what we'll need is the institution to get in right it's at least what we believe in and by the way everything I'll say here it's my own opinion not

necessarily the one of SNP but the institution have been getting in and when we look at 2018 2022 it was really really different right we had news every weeks every month BlackRock is uh investing in circle BlackRock is working with coinbase Visa is getting in and on and on and on now for them to really get in they need several things that's what we'll be uh speaking about today before that I want to touch on over collateralization and the fact that the future is just not overcollatorization it was a great demonstration of what can be done on chain and have in Campaign which is great

but at the end of the day to get trillions from institutions they will not bring trillions to to be able to get a 20 loan right for mortgages you would not ask somebody give me five houses so you can get the loan for one institution is the same so you will need and we will have credit moving on chain we'll have more and more under collateralize and uncollateralized lending so how does it work in intract 5 because there's a lot of things that are we don't need to reinvent the wheel when we when we look at for instance individual you have a credit score when we look at companies you have credit rating agency like s p Global ratings which are providing a third-party assessment on your risk of default

now what do we really really need so the first one is regulation which is something that almost every country is looking at the second one is a trusted independent third party and here I'll touch a bit on how it works in traffic because we believe that for a while will be between will be in a hybrid right we are already not full threat Vibe we have billions and billions in D5 and we will not be full defy for at least many many years so how can you have um risk assessment in both field and how does it work in traffic right now well intra advice right now the company that does the risk assessment cannot invest

in what it's assessing which was not necessarily the case in in what we've seen D5 before for those that try to do that kind of thing but it goes further than that employees cannot invest in anything related to the rating they're doing that's how it works in threat fine and that's how we believe uh will have to happen also in that in that field so it means for instance an analyst cannot invest in a single stock I cannot invest in a single stock when you're in a credit rating agency you cannot invest even in a fund that is not Diversified enough and has like 10 plus in in one specific stock so that's one other thing we'll have to have in in D5 to have quality risk assessment and independent risk assessment

something else is in a credit trading agency you have full firewall between the commercial team that will speak with different uh clients that need a rating and the analytical team which is doing the actual analysis it's totally firewall when there is a conversation it's chaperone and that's needed to avoid well uh the just the risk to have an influence from commercial to the needy gold folks now all that is great but you also need two other factors which are really hard to get all together one is you need to understand the risk that you have traditionally in finance most of the risks that led to the catastrophic collapse of some of the player I showed before areas that are known in finance

now they are also other risks which are related to defy themselves related to the risk of hacking and the tokenomics and there are different type of new risk and it's really hard to get people that really understand both so what we've been doing on that so first we started a digitalization of market research lab that was in 2021 in 2021 and we look at them and and some of the application they they done we started to have analysts looking at the field and training themselves at the same time are understanding what is D5 having an open mind which for you know traditional Finance is not always easy and and we'll look at that on the next

slide but then we also invested in Luca which is a data provider because we use them for our s p Dow Jones indices in crypto that was 2021. in 2022 we created the team I'm part of we created a chief D5 officer and we did the first ever rating of something touching the protocol which was a compound Prime so compound Prime the idea came from Robert from compound he just realized that it would be extremely relevant to have its treasury rated and and that's what we did in 2022. in 2023 we invested in credora that some of you might know I got a slide on them just after that they are like a credit rating Agency on chain

and we just expanded our team from from two to five percent we'll continue to extend So speaking of the research lab here you have a sample they did more than that a sample of all the publication that were done so they touch really on everything from stablecoin to complaining D5 and C5 to look at the crypto evaluation and how they could be done all of those were done by people that are fully traffic but that got an interest and trained themselves for now more than two years in crypto and you need people like that to really understand the field and combine their existing knowledge on risk evaluation into ratify to actually be able to build

a new type of risk assessment that we need in in defy and crypto Finance speaking of credora just in case you never heard of the name so credora was founded in 2019 we invested in them last year with uh we're the lead with coinbase they are right now monitoring around 3 billion when we speak with and uncollateralized D5 protocol I think almost everybody is working with them they provide real-time risk assessment and I will invite you to to speak with them I think they're around in in ACC now closing on on that slide it's what we're interested in so of course there's

a lot of product we're working on right now we're developing I cannot share uh hopefully maybe next year but we we acknowledge that there is a need to understand the risk of smart contract themselves which is not something we would traditionally do there's a need to understand the risk of stablecoin themselves so when I speak of stablecoin I really include them all so it's uh Bank issued stablecoin crypto stable coin algorithmic or not we're really interested in those are focusing towards the US dollars so I'm not really including here the the rap Bitcoin Etc even if it's something that is also interesting to look at in the future but in future it should be visibility on the risk of a stable coin so we saw what happened with USD but the

real question is what is the risk of a d-peg what is a risk of uh get just getting your money back right so some look like money market funds some look like repo deal but there's not a lot of visibility on the actual risk from somebody for for retail in general but even for some institution then there is the airwa pool when we look at some deals that were done uh well and some that are being created right now there are pools where well you know you will invest in some invoice in Colombia or you know you will invest putting your usdc in a pool in mortgages in Canada but that's pretty broad right what is the risk that you have on those specific

mortgages there's only way you can have a view on that is if you have access to Caesar deal and traditional Finance you'll have credit rating agency that are able to see private data because they will not act on the deal they'll not participate and not share this information they're regulated and they can look at the data and give an opinion independent opinion on what is the risk of this specific pool of of loans Etc then there is a lender borrower like creditor has we are interested also in everything there is proof of reserve and touching profile preserve we also interested in everything touching like the the trust anchor like they have in in project guardian where institutions are

providing uh an assessment or a proof of security so that's it I went through slide pretty fast but I just wanted to give a view on several things first this need for different type of risk assessment there's different look at how it could be done in D5 but the only way we will be able to be done is when you combine the knowledge of existing risk plus the D5 risk and you get to have with or without regulation the limitations of that whoever is doing Zeus assessment cannot participate in the investment or or in the in the trade so that's it I'll not take question just

here but I'm happy to take any question outside [Laughter] [Applause]