Charting the Path for Institutions in DeFi | DAS London 2025 | Day 2 | Institutional
Summary
Institutional Adoption of DeFi: The discussion highlighted the increasing interest of institutions in decentralized finance (DeFi), with a focus on leveraging historical expertise in data analytics and benchmarks to improve market liquidity and transparency.
Risk Management in DeFi: Institutions are focusing on risk management, particularly in the context of smart contracts and high-throughput chains, emphasizing the need for real-time data and quick collateral posting during market events.
Regulatory Developments: Recent regulatory frameworks in North America and Europe, such as the Mika in Europe, have provided more clarity and comfort for institutions to engage in the DeFi ecosystem.
Stablecoins and Tokenization: Stablecoins and the tokenization of assets are seen as foundational elements for institutional entry into DeFi, with significant developments expected in the coming years, including the role of major financial institutions like BlackRock.
Infrastructure and Liquidity: The panel discussed the importance of robust infrastructure and liquidity in DeFi, with institutions looking for mature, resilient venues that can handle complex transactions and provide necessary data visibility.
Future Outlook: The conversation suggested that the next phase for DeFi involves moving from experimentation to execution, with advancements in technology and regulatory clarity expected to unlock new opportunities and capital pools.
Bitcoin and Yield Generation: Institutions are exploring ways to turn idle Bitcoin into yield-generating assets, with strategies focusing on trading, lending, and innovative staking solutions.
Data and Standardization: The need for standardized risk assessments and data platforms was emphasized as crucial for institutions to navigate the DeFi landscape effectively and make informed decisions.
Transcript
Hello. Hello. I'm very excited to close out the day with this next panel. Um I think it's a very important panel right now. I don't think we would have been having the same conversation, let's say, last year. Um but I want to first go around and have you guys introduce yourselves and give a little bit of background into, you know, why you're up here and kind of set the tone of our conversation. Chuck, do you want to take it away? >> Sure. So, hi, it's great to be here. Uh so I'm Chuck Mounz. I'm the chief DeFi officer at S&P Global. Uh and so my team's mandate within the organization is to help uh the the company build the products and services that are relevant for digital asset markets. Uh and so what we're looking to do is leverage our historical expertise in data analytics and benchmarks and bring it into the crypto ecosystem. um and looking to leverage our analytic uh capabilities and benchmarks to improve liquidity in the marketplace uh to enhance transparency uh and enable decision-m and to foster greater price discovery. So we have a lot of uh developments that have happened uh at the company over the last several years including our initial product in the risk assessment category, the stable coin stability assessment that we launched almost two years ago that measures the risk of a stablecoin deping from its intended 1:1 mark against a fiat currency. And in fact, you may have seen today we had a very exciting announcement where we are taking our stable coin scores and putting them on chain uh through our partnership with chain link on the base uh blockchain. So this is a very exciting development for us and the first step we have um and taking our risk assessments and putting them directly on on chain. We also have many products on benchmark side with the index business and you may have seen just last week we announced our uh digital asset top 50 which is looking at measuring creating an index product that captures the the broader crypto ecosystem. So those are just a couple of the examples uh that we're developing to uh try to facilitate the kind of leveraging our brand and our franchise and analytics and benchmarks to kind of accelerate the development and adoption uh in the crypto ecosystem. Hey everybody, my name is Thomas Chen. I'm the CEO of Function. I'll start with a quick story. So my background, I was global head of sales at Bitco. And the one problem that I saw was Bitco had amassed and this is all public about a h 100red billion in AU last year. A lot of that was just BTC doing absolutely nothing. So the problem was how do we turn BTC from this idle passive store of value asset into a productive active yield generating capital. Right? That's what we're here to solve at Function. Currently we've got about 1.6 6 billion in TVL and we're creating high integrity Bitcoin yield markets. >> Uh hey everyone nice to be here. My name is James Smith. I'm one of the founders of Elliptic uh and the chief strategy officer. Uh we we founded Elliptic in in 2013 and Elliptic is the uh the risk data layer for digital assets. So we work with uh the leading banks, exchanges, payments companies, asset managers uh and so on uh to give them the the data they need so they can understand uh both who and what they should be comfortable transacting with online. So that will often be their compliance teams using our products to uh do on boarding to understand counterparty to screen transactions do the ongoing monitoring to uh to assess protocols to assess uh blockchains networks uh and so on. Uh looking at what looking at the data and the insight that we're we're able to surface to them about the risks that they may be exposed to and how how they can mitigate those risks. I think before we really dig into institutions coming to DeFi, one of the topics that I I think we kind of have to hit on is Friday, right? And the way I want to phrase this question, and Thomas, I want to shoot it to you first, is does an event like Friday have an impact on institutions being interested in DeFi at all? >> Does it have an impact? Um I think what maybe I can reframe that and is what did Friday show institutions about DeFi, right? What did it what was the story that it told? Um I think Friday showed a fundamental divide between retail speculation and institutional investment management. I think that in an event such as Friday where there's a lot of liquidations, retail gets liquidated, institutions postmargin and properly risk manage, right? Um, I think that as as the DeFi ecosystem continues to develop, it's catering itself to institutional needs. Um, but I think there's the overwhelming risks that it exposed, which is a smart contract is not going to give you a margin call. Like it's not going to physically call you, right? A smart contract will just execute. So, it really depends on how quickly you can post collateral to the DAP to the specific chain that you're borrowing from, right? And these high throughput chains that are marketed, all these L2s are only as good as how quickly you can actually deploy in a in in a moment of need like we saw on Friday. Um, so I think it exposed a lot of different parts of DeFi that still need work, but I I don't think it's a DeFi problem per se. I think it's a risk management consideration. >> Yeah, I think I agree with that. And I think it's it showed the importance of having uh good real-time data, understanding what's happening, and being able to, as you say, react quickly, post your margin if that's your decision. Um I think it was interesting to look as well at uh the sort of split between um centralized and decentralized protocols in that sort of two-hour window around the event. Um we saw the amount of money flowing into and out of centralized venues tripled. Um whereas uh decentralized venues it doubled but not much more than that. Um so I think it it highlighted that the the sort of the safe and the the quick way um in most people's minds at the moment is still to head back to a centralized venue. You know, I I guess I would add to that being in a trad um I would say that it will definitely be a point a conversation amongst executives and leadership teams who are looking at building the space, but it's probably just that a conversation um with a recognition that there's a combination of macro and idiosyncratic risks that come along and really just heightening the okay, if this is the backdrop, how do we kind of engage in the space uh both from a product perspective, but also from a reputational risk perspective. I don't think that stops advancement. I just think it'll be part of the conversation. Um, and I would also argue that events like last week demonstrate the need or the opportunity for a firm like S&P uh to leverage our trusted brand and data risk and anal analytics to bring to the marketplace um uh and and shine a light on some of the risks inherent in the ecosystem. So once again, I go back to our stable coin uh stability assessments that we provide. We have 10 uh SSAs in the marketplace that are scored on a range of one to five. One being the best and five being the worst. There are no stable coins that score a one today and there are two that score a five. Um Athena is one of those that is scored a five. And if you look at the u risk assessment writeup, it talks about uh the complexity of the operating model of of the of the coin um and the reliance on external parties. So once again, I think this is an opportunity where uh firms like ours with a trusted brand and deep analytic capabilities and understanding can help shine a light uh to market participants on what are some of the risks that are inherent uh in the different kinds of stable coins or the different kind of products that we actually do a rating on. Uh so we have several ratings in the marketplace including uh a rating we that was made public a few weeks ago around the sky protocol. So once again, we are striving to provide that transparency and insight to market makers to inform their decision- making that then in turn leads to enhanced liquidity and better price discovery. >> If I may add one more per um point of point of view per se. So let me put on my retail hat and then let me put on my institutional hat. So I having been at BO, we were called Trad Crypto, right? which is I don't know if I'm crypto native or I'm I'm trady but a retail person in crypto kind of this crypto game you really just want leverage and you want yield. So if I'm a retail person, if you look at my user journey, I'm hearing about stuff on crypto Twitter. I see the yield. These Koss that I follow are shilling. It sounds great. Uh Athena or any of these protocols like do they have a linear effect? Have I heard of it? Sounds safe. Are my friends in it? Great. I'm just going to figure out how to get access to it. Right? I'm savvy enough to get access. Compare contrast that with an institution. The way the institutions evaluate it is okay, where are the keys held for the for the for the DAP? Right? If it's if if my assets are going in there, how's what is the actual control security mechanism? Okay. U what is the you know for the specific trade, what is the LTV if it's a borrowing strategy? And then for the DAP in question or wherever trade you're going like what is the liquidity on that venue? What happens in uh a moment of liquidity crisis all of that is mapped out. So they do tend to move a lot slower and more carefully. For us we usually employ mostly market neutral strategies. So we weren't affected by this at all and in fact a lot of our strategies uh profited um from the market dislocation. >> I want to zoom a little bit further out. I when I was introducing this panel I made kind of like a snide comment that you know we might not have had this exact panel last year. And I want to use as a jumping off point for a question which and I'm curious to get your take first James. uh how has the conversation around institutions entering DeFi changed in the last two years? >> Well, I think I think there's three major things that have um that have changed. I think it's it's rules, is rails, and it's data. I think um you know, it's the first one has been talked about a lot. Um but you know both in uh in North America and in Europe we now have frameworks uh that didn't exist before. We've got genius in the US and uh hopefully at some point clarity. Um we have Mika in Europe which is now uh in action and um you know these these really changed regulation from where it used to be a couple of years ago even fairly narrowly focused on uh just anti-money laundering now to bring in other aspects of uh you know markets and consumer protection and um and various other agencies you know coming in and thinking about how they're going to make this a safe space. And so having having those those more general frameworks um gives comfort comfort to institutions to say okay I can start to understand how I can play a role in this ecosystem. So um so I think that that's really important uh rails I mean infrastructure right like the the level the sophistication of uh of custody of exchanges of uh of bridges to get between networks um of uh of the D5 venues of um you liquidity pools and so on has come so far in two years has been battle tested um you uh has been uh battle tested by bad actors in many places and and has become more resilient as a as a result. Um and and so there is a we are in a better place to be able to assess the relative risk of different um parts of the ecosystem. You know, how can I get comfortable with a centralized venue? How can I get com comfortable with a decentralized exchange? um how do I compare that to to different other different types of uh decentralized protocols? Um and then finally uh I think data is a critical piece. Most institutions are not going to come and start doing anything unless they can understand, they can report, they can monitor, they can um be audited, uh they can explain to their board what's going on. So there is uh it's so critical um to have both the the the market data um to be able to understand the the world that you're wandering into um and then also the the risk data to understand who you're trading with particularly in the in the decentralized world. And so I think um you know the maturation of um you know of data platforms um like like yours like ours to be able to to give people uh the data they need to understand across you know every chain that they want to interact on as money moves from one chain to another to be able to see through all of that and to be able to really understand uh the various types of risk that they need um is is the third and and most critical piece I think that has changed in the last couple of years. Thomas, you as you said, you worked in TR crypto and that's kind of like an interesting combination of the two and I'm wondering from your experience, what can both the institutional players and the more cryptonative crowd learn from each other as we start to see these paths converge? Um I think at the end of the day it's all about liquidity as James mentioned right during the crisis on Friday people flock to where there's liquidity right so I think for institutions it whether it's one chain or other chain it's whether it's onchain or offchain is inconsequential it's where's liquidity where's capital efficiency and so DeFi has made a lot of inroads in building the right infrastructure to be able to cater to institutions because they know that institutions can bring a lot of liquidity. Um, but right now I I would say the way that I view it is DeFi is like this experimental pool of liquidity that technologists and people are actively building new financial primitives to see how things work. Um, and then every once in a while, you know, it kind of goes off the reservation and does something crazy, right? But it it does take time for the rails to mature and evolve and for the institutions to catch up. So if we look at like all the narratives that are pervasive today, I would say stable coins and bitcoin are like the foundation, the bedrock of how institutions are going to get into decentralized finance. And then you have some of the more speculative things like per right or rwas. Um and then of course, yeah, it's all about how they can access all these things. And I think DATs is probably the perfect culmination of a lot of these factors where DATs to me are actually just Trafy rappers of crypto assets funnily enough instead of the reverse which is what we normally see. Um so DAT is probably worth focusing on as like a the pilot use case for how the two worlds are converging. I think that comparison to stable coins is interesting as well because I mean I forget which year it was that we first had a stable coin, but it was several years before we had DeFi summer certainly and it's taken until now for us to suddenly start using them properly, right? It's it's really not been until this year that the mainstream has come in and started using stable coins and they've been banging around in the the crypto world for eight years or so. Um, and so yeah, DeFi is is still young by comparison and and we are still in that testing phase and it's more complex than a stable coin. Um, so I think there's there's a bit of testing to be done before it it has its stable coin moment. I I definitely think we're at that point of mainstreaming uh going from what you describe as like the experimentation phase uh going into tangible executable uh applications and I think the the foundation of that or the bedrock of that is a combination of uh acceptance in the ecosystem um and and I would say there are two kind of meaningful catalysts in the last year that helped facilitate that. one is the uh approval by the SEC for spot uh Bitcoin and Ethereum ETFs. I think that was a pivot point or a catalyst for the sector as a whole. Uh and then the other is for name household names in the financial industry like Black Rockck um as an example to become vocal advocates and proponents of the tokenization of everything and the operation operating markets operating on blockchain rails. So I think that was a very important backdrop or contextual backdrop for executives and tradi companies around the world. But as importantly or I would argue probably even more importantly is the for the policy formation uh that's accelerated uh particularly in the United States after the last election with a new white house and a new Congress um that has gone from being an antagonist to all things crypto to being the world's largest protagonist uh with a stated objective of being the crypto capital of the world. That's a fundamental shift in policy approach and you're seeing that cascade through not only legislation like the genius act and the upcoming clarity act but also in the execution of rulem and policy uh regulatory policy action. So I was just looking at policy actions that have been handed uh been undertaken in the last month or two by you know the FDI, the OC, the Fed, the Treasury. uh there are a number like a dozen policy actions regulatory policy actions that are moving forward even without legislation um and so I think the combination of this policy formation uh in total by the world's largest economy and the world's largest financial market will is a gamecher uh for the mainstreaming of the capabilities in the ecosystem and we're just getting teed up for that uh in in my opinion in 2026 and 2027 for that to really come on stream. >> So to clarify, you think that we're going to have more institutions really showcasing what they're interested in in 2026 2027? I think that from the seat we sit in um we see that a lot of organizations have been in this experimentation phase um and looking at products they could create or processes they could create that would be um kind of kind of introducing crypto capabilities into their business network even if it's not launched. Um and I think um we're we're at that stage where it can move from that experiment experimentation non-launched phase to actually launching. Um and there's a lot of dynamics that will play out. Some are idiosyncratic within the organizations themselves. Some are macro in nature to your first question is how do the events of last week kind of affect those discussions? Uh but I think in combination we should expect to see and I would expect to see um a a pretty significant ramping up of capabilities within the traditional market uh infrastructure. >> I saw you raise your mic. Did you want to make a point Thomas? >> Okay. Um, I guess when I'm thinking about moving forward from this experimentation phase into the actual institutions really bringing DeFi in, my biggest question is what are the use cases for them? Um, beyond like stable coins make sense, right? DeFi, I think it makes sense, but sometimes it's hard to see why the institutions are are eager to be there. And so Thomas, I wanted to actually ask you, what do you think you're going to start like what kind of announcements are we going to start seeing 2026 2027 for example? >> I think there was just an announcement a couple hours ago about Black Rockck building its own tokenization platform if I'm not mistaken on cryp on Twitter. I say crypto Twitter. Um, so and with NASDAQ announcing right them tokenizing their pipeline of of their ecosystem, I think we're seeing these large institutions come in. And again, from my perspective, I don't think the institutions care what chain it's on. I think the institutions are going to have chains and chains will be used for purpose purposely selected or built for particular use cases. Um, but at the end of the day, as long as there's liquidity, that's ultimately what matters. I don't know if I have I can predict. I'm not as close to on traditional finance side as as Chuck and James might be on what announcements might be coming in. But I think what S&P has done is clear the way and give some more clarity and reassurance for the risk operators at these large financial institutions funds to sign off and on these decisions when they go into DeFi, right? if they say okay based off what S&P is saying and the risk level scoring of these particular assets is a 1 2 3 4 or five I'm comfortable deploying this much right so I think it gives the structure and discipline and um mature processes that's much needed in the space >> yeah I think the um yeah I think as you said before DeFi at the moment is in its testing phase and I think crypto is a great testing ground um for people to try out lending and swapping and uh and everything else. Um I think the like that's not going to be adopted at scale by institutions until a it's robust and we see that it doesn't get hacked by North Korea. Um uh and b that liquidity is there and I think the liquidity that they care about is bringing more and more assets on chain. So, it is tokenizing more things. Um, and then being able to take advantage of cheaper, atomic, uh, quicker swaps, um, same lending, etc., etc. Um, so I think the the use cases will be all of the use cases that we see today, but it won't happen until we've got comfortable with to tokenizing more assets and uh and comfortable that we've built robust venues. I I might key on on a couple of things that Thomas said as well. So I'm not so sure that institutions won't care what chain they're on. Um I think like from our perspective, we're chain agnostic. Um and so we just want to provide the uh tools that enable folks to understand the risks that are inherent in different kinds of operating environments including which chain they're on. Uh that optimizes their business. Um so I suspect that there will be some differentiation in the future of uh institutions deciding kind of based on analysis that some of the firms up here do uh and maybe others to decide where they think they can optimize their uh focus on liquidity. I agree with that. The focus on liquidity against the inherent risks of the operating environment they're choosing to be on. Um and that's where once again we think that we can help firms navigate uh those balances or find that balance uh between maximizing liquidity and and operation um kind of robustness against the risks that are inherent in different operating environments. Yeah, I think it's um as we think about tokenizing more assets, it's important to remember that um they're going to be a lot more complex than moving currency around and the requirements that come with moving around a bond or a share or something more complex uh go up. So having having the right um controls, having the right data visibility, being able to report um all of that needs to be in place uh before institutions are going to be comfortable making these complex transactions on chain. Um so as well as the sort of the technical pieces underneath, it's about being able to give that visibility, make sure that they can really understand what they're doing and and they can report to the appropriate people. you teased your announcement today, the S&P announcement with Chain Link. I I want to dig a little bit into broadening that and speaking about the way that we rate or standardize ratings to for safety reasons for institutions. Um, when you're thinking about and having these conversations at S&P, what what are they centered on? What are you trying to standardize for institutions across the industry? Well, so just as a point of clarification, so I'm in the strategy function at S&P. So I sit in a commercial function. We have a separate uh analytic function that has responsibility and ownership of the analytic approaches and we're separated by a Chinese wall. So they operate quite separately. Uh but uh for people in the audience who are interested, the lead, our analytic lead in digital assets and crypto is here at the conference, Andrew O'Neal. Um and I would uh suggest if you're interested in kind of doing a deeper dive on the analytic approaches that are deployed in the ecosystem uh he would he is a fantastic resource to speak to. Uh but I would say that for the analytic approaches start at a baseline of our existing methodologies and look at like the fundamental risk tenants that exist in traditional markets that are applicable in a crypto na in a crypto environment. So looking at things like asset quality uh operating risk operating structure regulatory risk um kind of uh liquidity mis man liquidity management things of the fundamental nature that's the starting point and then then from the analytic context you would kind of jump to the next okay what are the risks that are unique because it is a crypto ecosystem uh so for instance perhaps the blockchain or perhaps um like any kind custodial arrangements that may uh be different in in a particular context. Um what about the usage of a stable coin and which stable coin? So there's you start with the baseline then you move into the risks that are more idiosyncratic and specific to crypto uh that then form the new analytic approach and either the rating or in the case of the stable coins a non-rating risk assessment. I see we only have a few minutes left and we do have a lot more that I wanted to get to that we just are not going to be able to get to unfortunately. But um I wanted to ask you Thomas, how do how do we think about risk versus opportunity in this space? >> From an institutional standpoint or >> Well, no, no, from Yeah, I guess from an institutional standpoint. I'm curious to just get your take on when we're seeing these paths converge, what what else do they like what does our audience need to know because we've got primarily institutional audience members. >> Sure. So, I can speak about this from the Bitcoin holder perspective as that's majority of my um LPS or clients. So, from their perspective, BTC normally is just an idol asset, right? And I'll kind of paint this under the guise of what's happening with DATs. I think right now in Q4 the accumulation phase is going to be over and soon the treasury managers are going to ask themselves I've accumulated all this BTC what can I do with it how do I deploy it just like idle cash is bad how do I utilize the BTC in order to get more yield to hedge against these um you know market volatility etc etc and I think you'll start to see the MNAV be more associated with the operating company and how the team utilizes the BTC versus just you know financial engineering to quickly buy as much as possible. Um from the perspective of how this goes into DeFi typically what we've seen is generally most institutions have a hurdle rate about 5% that they want to achieve on BTC on BTC yield. Now the challenge with BTC is there's there's if you really want to get granular there's several different ways you can generate yield but there's three main buckets. First one of course is trading whether that's onchain or offchain. The second one is lending, which is the one we see most of. Use BTC or a wrapped version of it like ours um as collateral to borrow stable coins to run a trade. Or the third one is staking. And if you guys are more cryptonative, you'll remember staking Bitcoin is not technically possible because Bitcoin is not a proof ofstake chain. But there are different projects that are trying to uh figure out how to via a smart contract delegate BTC to earn some sort of reward. Um there are different risk profiles to each approach and we one of the things that we're trying to solve for is how do we make it as simple as possible so that institutions can take a look at the different strategies and know that this is a classified as a safe strategy or a balanced strategy or an aggressive strategy based off of the underlying uh infrastructure DeFi applications that is being used to generate those returns. I think what Chuck and the S&P team have done is break open the door for some standardization from the institutional side. And it's kind of funny because that there's no real standardization on the DeFi side, even though DeFi quote unquote moves more quickly than Tradfi. So, I think this will come and a standardization will quickly orient itself to some of the larger players that have a lot of amassed a lot of capital within DeFi um that are running these strategies. If I think about the the institutions that we work with um and how they're thinking about their question of risk versus opportunity, I mean there are so many things they could do, you know, sitting in front of them and frankly two years ago they would have said no to all of them or most of them did. Um there were a few early movers. Um and that's entirely changed now, right? Everybody is got a a digital asset strategy now. Um but I think they're still being selective and looking at maturity, looking at um maturity of technology, of the market, amount of liquidity, etc. Um the the biggest banks that we work with are going for perhaps the most obvious thing of you sticking to what they know and doing reserve management for stable coins. Um there's $300 billion sitting in stable coins now and they'd like that to sit at their bank rather than somewhere else. Um but that in itself comes with a huge set of new risks that they don't understand. So um you using the right data, making sure they understand how money flows around that ecosystem, what their risks are, who are they exposed to and who are who are their counterparties exposed to and how do they manage all of that. I think starting with the thing that is closest to your core expertise is is the um the obvious thing to do and that that's what most of the um the biggest banks we work with are doing now. >> Okay. Okay, we've got a minute and 30 seconds left. So, I'm going to just have you guys do closing remarks because I know that there's a lot more on this topic that we weren't able to get to. And I I want to close out with your thoughts and and what you think is next. And so, Chuck, I'm going to start with you. >> Yeah. So I think um probably the next phase uh with a backing of policy clarity particularly once we get the clarity act and really defining the the the the regulatory arch framework and architecture um will further unlock the the uh opportunities in the DeFi and the crypto ecosystem u and really allow us to move from a point of uh evolution in the marketplace i.e reducing costs and looking at uh kind of the next extension of distribution to new types of clients to the revolution in markets which is like the formation of new pools of capital that are accessible by a wide and new set audience set uh that enables portfolio construction to go to the next level and integrates both uh onchain and off-chain capabilities to deliver unique and bespoke uh risk return attributes. Uh so I think that's the next stage and it will be couched in a foundation of the technology advancements and the regulatory uh environment. >> I'll be quick. Um again as I mentioned the accumulation phase for Bitcoin is over. People are going to have to figure out how to deploy that. Um yeah that's about it. >> Um I think if you haven't got a stable coin strategy yet, go and get one. I think stable coins are here for good now and you can manage the risks. There's good data. you can you can do what you need to to incorporate that into into your um into your workflow. Uh I think the the the tokenization of other assets is is the next step. Um and and I think that's really exciting to start seeing um you know major players like Black Rockck doing that on public chains rather than keeping it all behind doors on sort of enterprise chains as used to be the case. Um and and I think that you know those two things when combined will start to unlock DeFi and uh in a in a major way. And so I'm really excited about that uh that coming to pass. >> Well, I think in 40 minutes we were able to chart a little bit of a path forward for institutions in DeFi. So, thank you guys so much for joining us.
Charting the Path for Institutions in DeFi | DAS London 2025 | Day 2 | Institutional
Summary
Transcript
Hello. Hello. I'm very excited to close out the day with this next panel. Um I think it's a very important panel right now. I don't think we would have been having the same conversation, let's say, last year. Um but I want to first go around and have you guys introduce yourselves and give a little bit of background into, you know, why you're up here and kind of set the tone of our conversation. Chuck, do you want to take it away? >> Sure. So, hi, it's great to be here. Uh so I'm Chuck Mounz. I'm the chief DeFi officer at S&P Global. Uh and so my team's mandate within the organization is to help uh the the company build the products and services that are relevant for digital asset markets. Uh and so what we're looking to do is leverage our historical expertise in data analytics and benchmarks and bring it into the crypto ecosystem. um and looking to leverage our analytic uh capabilities and benchmarks to improve liquidity in the marketplace uh to enhance transparency uh and enable decision-m and to foster greater price discovery. So we have a lot of uh developments that have happened uh at the company over the last several years including our initial product in the risk assessment category, the stable coin stability assessment that we launched almost two years ago that measures the risk of a stablecoin deping from its intended 1:1 mark against a fiat currency. And in fact, you may have seen today we had a very exciting announcement where we are taking our stable coin scores and putting them on chain uh through our partnership with chain link on the base uh blockchain. So this is a very exciting development for us and the first step we have um and taking our risk assessments and putting them directly on on chain. We also have many products on benchmark side with the index business and you may have seen just last week we announced our uh digital asset top 50 which is looking at measuring creating an index product that captures the the broader crypto ecosystem. So those are just a couple of the examples uh that we're developing to uh try to facilitate the kind of leveraging our brand and our franchise and analytics and benchmarks to kind of accelerate the development and adoption uh in the crypto ecosystem. Hey everybody, my name is Thomas Chen. I'm the CEO of Function. I'll start with a quick story. So my background, I was global head of sales at Bitco. And the one problem that I saw was Bitco had amassed and this is all public about a h 100red billion in AU last year. A lot of that was just BTC doing absolutely nothing. So the problem was how do we turn BTC from this idle passive store of value asset into a productive active yield generating capital. Right? That's what we're here to solve at Function. Currently we've got about 1.6 6 billion in TVL and we're creating high integrity Bitcoin yield markets. >> Uh hey everyone nice to be here. My name is James Smith. I'm one of the founders of Elliptic uh and the chief strategy officer. Uh we we founded Elliptic in in 2013 and Elliptic is the uh the risk data layer for digital assets. So we work with uh the leading banks, exchanges, payments companies, asset managers uh and so on uh to give them the the data they need so they can understand uh both who and what they should be comfortable transacting with online. So that will often be their compliance teams using our products to uh do on boarding to understand counterparty to screen transactions do the ongoing monitoring to uh to assess protocols to assess uh blockchains networks uh and so on. Uh looking at what looking at the data and the insight that we're we're able to surface to them about the risks that they may be exposed to and how how they can mitigate those risks. I think before we really dig into institutions coming to DeFi, one of the topics that I I think we kind of have to hit on is Friday, right? And the way I want to phrase this question, and Thomas, I want to shoot it to you first, is does an event like Friday have an impact on institutions being interested in DeFi at all? >> Does it have an impact? Um I think what maybe I can reframe that and is what did Friday show institutions about DeFi, right? What did it what was the story that it told? Um I think Friday showed a fundamental divide between retail speculation and institutional investment management. I think that in an event such as Friday where there's a lot of liquidations, retail gets liquidated, institutions postmargin and properly risk manage, right? Um, I think that as as the DeFi ecosystem continues to develop, it's catering itself to institutional needs. Um, but I think there's the overwhelming risks that it exposed, which is a smart contract is not going to give you a margin call. Like it's not going to physically call you, right? A smart contract will just execute. So, it really depends on how quickly you can post collateral to the DAP to the specific chain that you're borrowing from, right? And these high throughput chains that are marketed, all these L2s are only as good as how quickly you can actually deploy in a in in a moment of need like we saw on Friday. Um, so I think it exposed a lot of different parts of DeFi that still need work, but I I don't think it's a DeFi problem per se. I think it's a risk management consideration. >> Yeah, I think I agree with that. And I think it's it showed the importance of having uh good real-time data, understanding what's happening, and being able to, as you say, react quickly, post your margin if that's your decision. Um I think it was interesting to look as well at uh the sort of split between um centralized and decentralized protocols in that sort of two-hour window around the event. Um we saw the amount of money flowing into and out of centralized venues tripled. Um whereas uh decentralized venues it doubled but not much more than that. Um so I think it it highlighted that the the sort of the safe and the the quick way um in most people's minds at the moment is still to head back to a centralized venue. You know, I I guess I would add to that being in a trad um I would say that it will definitely be a point a conversation amongst executives and leadership teams who are looking at building the space, but it's probably just that a conversation um with a recognition that there's a combination of macro and idiosyncratic risks that come along and really just heightening the okay, if this is the backdrop, how do we kind of engage in the space uh both from a product perspective, but also from a reputational risk perspective. I don't think that stops advancement. I just think it'll be part of the conversation. Um, and I would also argue that events like last week demonstrate the need or the opportunity for a firm like S&P uh to leverage our trusted brand and data risk and anal analytics to bring to the marketplace um uh and and shine a light on some of the risks inherent in the ecosystem. So once again, I go back to our stable coin uh stability assessments that we provide. We have 10 uh SSAs in the marketplace that are scored on a range of one to five. One being the best and five being the worst. There are no stable coins that score a one today and there are two that score a five. Um Athena is one of those that is scored a five. And if you look at the u risk assessment writeup, it talks about uh the complexity of the operating model of of the of the coin um and the reliance on external parties. So once again, I think this is an opportunity where uh firms like ours with a trusted brand and deep analytic capabilities and understanding can help shine a light uh to market participants on what are some of the risks that are inherent uh in the different kinds of stable coins or the different kind of products that we actually do a rating on. Uh so we have several ratings in the marketplace including uh a rating we that was made public a few weeks ago around the sky protocol. So once again, we are striving to provide that transparency and insight to market makers to inform their decision- making that then in turn leads to enhanced liquidity and better price discovery. >> If I may add one more per um point of point of view per se. So let me put on my retail hat and then let me put on my institutional hat. So I having been at BO, we were called Trad Crypto, right? which is I don't know if I'm crypto native or I'm I'm trady but a retail person in crypto kind of this crypto game you really just want leverage and you want yield. So if I'm a retail person, if you look at my user journey, I'm hearing about stuff on crypto Twitter. I see the yield. These Koss that I follow are shilling. It sounds great. Uh Athena or any of these protocols like do they have a linear effect? Have I heard of it? Sounds safe. Are my friends in it? Great. I'm just going to figure out how to get access to it. Right? I'm savvy enough to get access. Compare contrast that with an institution. The way the institutions evaluate it is okay, where are the keys held for the for the for the DAP? Right? If it's if if my assets are going in there, how's what is the actual control security mechanism? Okay. U what is the you know for the specific trade, what is the LTV if it's a borrowing strategy? And then for the DAP in question or wherever trade you're going like what is the liquidity on that venue? What happens in uh a moment of liquidity crisis all of that is mapped out. So they do tend to move a lot slower and more carefully. For us we usually employ mostly market neutral strategies. So we weren't affected by this at all and in fact a lot of our strategies uh profited um from the market dislocation. >> I want to zoom a little bit further out. I when I was introducing this panel I made kind of like a snide comment that you know we might not have had this exact panel last year. And I want to use as a jumping off point for a question which and I'm curious to get your take first James. uh how has the conversation around institutions entering DeFi changed in the last two years? >> Well, I think I think there's three major things that have um that have changed. I think it's it's rules, is rails, and it's data. I think um you know, it's the first one has been talked about a lot. Um but you know both in uh in North America and in Europe we now have frameworks uh that didn't exist before. We've got genius in the US and uh hopefully at some point clarity. Um we have Mika in Europe which is now uh in action and um you know these these really changed regulation from where it used to be a couple of years ago even fairly narrowly focused on uh just anti-money laundering now to bring in other aspects of uh you know markets and consumer protection and um and various other agencies you know coming in and thinking about how they're going to make this a safe space. And so having having those those more general frameworks um gives comfort comfort to institutions to say okay I can start to understand how I can play a role in this ecosystem. So um so I think that that's really important uh rails I mean infrastructure right like the the level the sophistication of uh of custody of exchanges of uh of bridges to get between networks um of uh of the D5 venues of um you liquidity pools and so on has come so far in two years has been battle tested um you uh has been uh battle tested by bad actors in many places and and has become more resilient as a as a result. Um and and so there is a we are in a better place to be able to assess the relative risk of different um parts of the ecosystem. You know, how can I get comfortable with a centralized venue? How can I get com comfortable with a decentralized exchange? um how do I compare that to to different other different types of uh decentralized protocols? Um and then finally uh I think data is a critical piece. Most institutions are not going to come and start doing anything unless they can understand, they can report, they can monitor, they can um be audited, uh they can explain to their board what's going on. So there is uh it's so critical um to have both the the the market data um to be able to understand the the world that you're wandering into um and then also the the risk data to understand who you're trading with particularly in the in the decentralized world. And so I think um you know the maturation of um you know of data platforms um like like yours like ours to be able to to give people uh the data they need to understand across you know every chain that they want to interact on as money moves from one chain to another to be able to see through all of that and to be able to really understand uh the various types of risk that they need um is is the third and and most critical piece I think that has changed in the last couple of years. Thomas, you as you said, you worked in TR crypto and that's kind of like an interesting combination of the two and I'm wondering from your experience, what can both the institutional players and the more cryptonative crowd learn from each other as we start to see these paths converge? Um I think at the end of the day it's all about liquidity as James mentioned right during the crisis on Friday people flock to where there's liquidity right so I think for institutions it whether it's one chain or other chain it's whether it's onchain or offchain is inconsequential it's where's liquidity where's capital efficiency and so DeFi has made a lot of inroads in building the right infrastructure to be able to cater to institutions because they know that institutions can bring a lot of liquidity. Um, but right now I I would say the way that I view it is DeFi is like this experimental pool of liquidity that technologists and people are actively building new financial primitives to see how things work. Um, and then every once in a while, you know, it kind of goes off the reservation and does something crazy, right? But it it does take time for the rails to mature and evolve and for the institutions to catch up. So if we look at like all the narratives that are pervasive today, I would say stable coins and bitcoin are like the foundation, the bedrock of how institutions are going to get into decentralized finance. And then you have some of the more speculative things like per right or rwas. Um and then of course, yeah, it's all about how they can access all these things. And I think DATs is probably the perfect culmination of a lot of these factors where DATs to me are actually just Trafy rappers of crypto assets funnily enough instead of the reverse which is what we normally see. Um so DAT is probably worth focusing on as like a the pilot use case for how the two worlds are converging. I think that comparison to stable coins is interesting as well because I mean I forget which year it was that we first had a stable coin, but it was several years before we had DeFi summer certainly and it's taken until now for us to suddenly start using them properly, right? It's it's really not been until this year that the mainstream has come in and started using stable coins and they've been banging around in the the crypto world for eight years or so. Um, and so yeah, DeFi is is still young by comparison and and we are still in that testing phase and it's more complex than a stable coin. Um, so I think there's there's a bit of testing to be done before it it has its stable coin moment. I I definitely think we're at that point of mainstreaming uh going from what you describe as like the experimentation phase uh going into tangible executable uh applications and I think the the foundation of that or the bedrock of that is a combination of uh acceptance in the ecosystem um and and I would say there are two kind of meaningful catalysts in the last year that helped facilitate that. one is the uh approval by the SEC for spot uh Bitcoin and Ethereum ETFs. I think that was a pivot point or a catalyst for the sector as a whole. Uh and then the other is for name household names in the financial industry like Black Rockck um as an example to become vocal advocates and proponents of the tokenization of everything and the operation operating markets operating on blockchain rails. So I think that was a very important backdrop or contextual backdrop for executives and tradi companies around the world. But as importantly or I would argue probably even more importantly is the for the policy formation uh that's accelerated uh particularly in the United States after the last election with a new white house and a new Congress um that has gone from being an antagonist to all things crypto to being the world's largest protagonist uh with a stated objective of being the crypto capital of the world. That's a fundamental shift in policy approach and you're seeing that cascade through not only legislation like the genius act and the upcoming clarity act but also in the execution of rulem and policy uh regulatory policy action. So I was just looking at policy actions that have been handed uh been undertaken in the last month or two by you know the FDI, the OC, the Fed, the Treasury. uh there are a number like a dozen policy actions regulatory policy actions that are moving forward even without legislation um and so I think the combination of this policy formation uh in total by the world's largest economy and the world's largest financial market will is a gamecher uh for the mainstreaming of the capabilities in the ecosystem and we're just getting teed up for that uh in in my opinion in 2026 and 2027 for that to really come on stream. >> So to clarify, you think that we're going to have more institutions really showcasing what they're interested in in 2026 2027? I think that from the seat we sit in um we see that a lot of organizations have been in this experimentation phase um and looking at products they could create or processes they could create that would be um kind of kind of introducing crypto capabilities into their business network even if it's not launched. Um and I think um we're we're at that stage where it can move from that experiment experimentation non-launched phase to actually launching. Um and there's a lot of dynamics that will play out. Some are idiosyncratic within the organizations themselves. Some are macro in nature to your first question is how do the events of last week kind of affect those discussions? Uh but I think in combination we should expect to see and I would expect to see um a a pretty significant ramping up of capabilities within the traditional market uh infrastructure. >> I saw you raise your mic. Did you want to make a point Thomas? >> Okay. Um, I guess when I'm thinking about moving forward from this experimentation phase into the actual institutions really bringing DeFi in, my biggest question is what are the use cases for them? Um, beyond like stable coins make sense, right? DeFi, I think it makes sense, but sometimes it's hard to see why the institutions are are eager to be there. And so Thomas, I wanted to actually ask you, what do you think you're going to start like what kind of announcements are we going to start seeing 2026 2027 for example? >> I think there was just an announcement a couple hours ago about Black Rockck building its own tokenization platform if I'm not mistaken on cryp on Twitter. I say crypto Twitter. Um, so and with NASDAQ announcing right them tokenizing their pipeline of of their ecosystem, I think we're seeing these large institutions come in. And again, from my perspective, I don't think the institutions care what chain it's on. I think the institutions are going to have chains and chains will be used for purpose purposely selected or built for particular use cases. Um, but at the end of the day, as long as there's liquidity, that's ultimately what matters. I don't know if I have I can predict. I'm not as close to on traditional finance side as as Chuck and James might be on what announcements might be coming in. But I think what S&P has done is clear the way and give some more clarity and reassurance for the risk operators at these large financial institutions funds to sign off and on these decisions when they go into DeFi, right? if they say okay based off what S&P is saying and the risk level scoring of these particular assets is a 1 2 3 4 or five I'm comfortable deploying this much right so I think it gives the structure and discipline and um mature processes that's much needed in the space >> yeah I think the um yeah I think as you said before DeFi at the moment is in its testing phase and I think crypto is a great testing ground um for people to try out lending and swapping and uh and everything else. Um I think the like that's not going to be adopted at scale by institutions until a it's robust and we see that it doesn't get hacked by North Korea. Um uh and b that liquidity is there and I think the liquidity that they care about is bringing more and more assets on chain. So, it is tokenizing more things. Um, and then being able to take advantage of cheaper, atomic, uh, quicker swaps, um, same lending, etc., etc. Um, so I think the the use cases will be all of the use cases that we see today, but it won't happen until we've got comfortable with to tokenizing more assets and uh and comfortable that we've built robust venues. I I might key on on a couple of things that Thomas said as well. So I'm not so sure that institutions won't care what chain they're on. Um I think like from our perspective, we're chain agnostic. Um and so we just want to provide the uh tools that enable folks to understand the risks that are inherent in different kinds of operating environments including which chain they're on. Uh that optimizes their business. Um so I suspect that there will be some differentiation in the future of uh institutions deciding kind of based on analysis that some of the firms up here do uh and maybe others to decide where they think they can optimize their uh focus on liquidity. I agree with that. The focus on liquidity against the inherent risks of the operating environment they're choosing to be on. Um and that's where once again we think that we can help firms navigate uh those balances or find that balance uh between maximizing liquidity and and operation um kind of robustness against the risks that are inherent in different operating environments. Yeah, I think it's um as we think about tokenizing more assets, it's important to remember that um they're going to be a lot more complex than moving currency around and the requirements that come with moving around a bond or a share or something more complex uh go up. So having having the right um controls, having the right data visibility, being able to report um all of that needs to be in place uh before institutions are going to be comfortable making these complex transactions on chain. Um so as well as the sort of the technical pieces underneath, it's about being able to give that visibility, make sure that they can really understand what they're doing and and they can report to the appropriate people. you teased your announcement today, the S&P announcement with Chain Link. I I want to dig a little bit into broadening that and speaking about the way that we rate or standardize ratings to for safety reasons for institutions. Um, when you're thinking about and having these conversations at S&P, what what are they centered on? What are you trying to standardize for institutions across the industry? Well, so just as a point of clarification, so I'm in the strategy function at S&P. So I sit in a commercial function. We have a separate uh analytic function that has responsibility and ownership of the analytic approaches and we're separated by a Chinese wall. So they operate quite separately. Uh but uh for people in the audience who are interested, the lead, our analytic lead in digital assets and crypto is here at the conference, Andrew O'Neal. Um and I would uh suggest if you're interested in kind of doing a deeper dive on the analytic approaches that are deployed in the ecosystem uh he would he is a fantastic resource to speak to. Uh but I would say that for the analytic approaches start at a baseline of our existing methodologies and look at like the fundamental risk tenants that exist in traditional markets that are applicable in a crypto na in a crypto environment. So looking at things like asset quality uh operating risk operating structure regulatory risk um kind of uh liquidity mis man liquidity management things of the fundamental nature that's the starting point and then then from the analytic context you would kind of jump to the next okay what are the risks that are unique because it is a crypto ecosystem uh so for instance perhaps the blockchain or perhaps um like any kind custodial arrangements that may uh be different in in a particular context. Um what about the usage of a stable coin and which stable coin? So there's you start with the baseline then you move into the risks that are more idiosyncratic and specific to crypto uh that then form the new analytic approach and either the rating or in the case of the stable coins a non-rating risk assessment. I see we only have a few minutes left and we do have a lot more that I wanted to get to that we just are not going to be able to get to unfortunately. But um I wanted to ask you Thomas, how do how do we think about risk versus opportunity in this space? >> From an institutional standpoint or >> Well, no, no, from Yeah, I guess from an institutional standpoint. I'm curious to just get your take on when we're seeing these paths converge, what what else do they like what does our audience need to know because we've got primarily institutional audience members. >> Sure. So, I can speak about this from the Bitcoin holder perspective as that's majority of my um LPS or clients. So, from their perspective, BTC normally is just an idol asset, right? And I'll kind of paint this under the guise of what's happening with DATs. I think right now in Q4 the accumulation phase is going to be over and soon the treasury managers are going to ask themselves I've accumulated all this BTC what can I do with it how do I deploy it just like idle cash is bad how do I utilize the BTC in order to get more yield to hedge against these um you know market volatility etc etc and I think you'll start to see the MNAV be more associated with the operating company and how the team utilizes the BTC versus just you know financial engineering to quickly buy as much as possible. Um from the perspective of how this goes into DeFi typically what we've seen is generally most institutions have a hurdle rate about 5% that they want to achieve on BTC on BTC yield. Now the challenge with BTC is there's there's if you really want to get granular there's several different ways you can generate yield but there's three main buckets. First one of course is trading whether that's onchain or offchain. The second one is lending, which is the one we see most of. Use BTC or a wrapped version of it like ours um as collateral to borrow stable coins to run a trade. Or the third one is staking. And if you guys are more cryptonative, you'll remember staking Bitcoin is not technically possible because Bitcoin is not a proof ofstake chain. But there are different projects that are trying to uh figure out how to via a smart contract delegate BTC to earn some sort of reward. Um there are different risk profiles to each approach and we one of the things that we're trying to solve for is how do we make it as simple as possible so that institutions can take a look at the different strategies and know that this is a classified as a safe strategy or a balanced strategy or an aggressive strategy based off of the underlying uh infrastructure DeFi applications that is being used to generate those returns. I think what Chuck and the S&P team have done is break open the door for some standardization from the institutional side. And it's kind of funny because that there's no real standardization on the DeFi side, even though DeFi quote unquote moves more quickly than Tradfi. So, I think this will come and a standardization will quickly orient itself to some of the larger players that have a lot of amassed a lot of capital within DeFi um that are running these strategies. If I think about the the institutions that we work with um and how they're thinking about their question of risk versus opportunity, I mean there are so many things they could do, you know, sitting in front of them and frankly two years ago they would have said no to all of them or most of them did. Um there were a few early movers. Um and that's entirely changed now, right? Everybody is got a a digital asset strategy now. Um but I think they're still being selective and looking at maturity, looking at um maturity of technology, of the market, amount of liquidity, etc. Um the the biggest banks that we work with are going for perhaps the most obvious thing of you sticking to what they know and doing reserve management for stable coins. Um there's $300 billion sitting in stable coins now and they'd like that to sit at their bank rather than somewhere else. Um but that in itself comes with a huge set of new risks that they don't understand. So um you using the right data, making sure they understand how money flows around that ecosystem, what their risks are, who are they exposed to and who are who are their counterparties exposed to and how do they manage all of that. I think starting with the thing that is closest to your core expertise is is the um the obvious thing to do and that that's what most of the um the biggest banks we work with are doing now. >> Okay. Okay, we've got a minute and 30 seconds left. So, I'm going to just have you guys do closing remarks because I know that there's a lot more on this topic that we weren't able to get to. And I I want to close out with your thoughts and and what you think is next. And so, Chuck, I'm going to start with you. >> Yeah. So I think um probably the next phase uh with a backing of policy clarity particularly once we get the clarity act and really defining the the the the regulatory arch framework and architecture um will further unlock the the uh opportunities in the DeFi and the crypto ecosystem u and really allow us to move from a point of uh evolution in the marketplace i.e reducing costs and looking at uh kind of the next extension of distribution to new types of clients to the revolution in markets which is like the formation of new pools of capital that are accessible by a wide and new set audience set uh that enables portfolio construction to go to the next level and integrates both uh onchain and off-chain capabilities to deliver unique and bespoke uh risk return attributes. Uh so I think that's the next stage and it will be couched in a foundation of the technology advancements and the regulatory uh environment. >> I'll be quick. Um again as I mentioned the accumulation phase for Bitcoin is over. People are going to have to figure out how to deploy that. Um yeah that's about it. >> Um I think if you haven't got a stable coin strategy yet, go and get one. I think stable coins are here for good now and you can manage the risks. There's good data. you can you can do what you need to to incorporate that into into your um into your workflow. Uh I think the the the tokenization of other assets is is the next step. Um and and I think that's really exciting to start seeing um you know major players like Black Rockck doing that on public chains rather than keeping it all behind doors on sort of enterprise chains as used to be the case. Um and and I think that you know those two things when combined will start to unlock DeFi and uh in a in a major way. And so I'm really excited about that uh that coming to pass. >> Well, I think in 40 minutes we were able to chart a little bit of a path forward for institutions in DeFi. So, thank you guys so much for joining us.