The Rise of DeFi and Crypto Derivatives

Transcript

hi hello hello everybody thank you thank you for uh being uh staying with us in this uh audio Maxi room um now we will have the third panel of the day um there will be uh just one all the panel After Earth so this morning we are the the yield panel uh you you just uh uh add the chance to have the crypto VC panel and now we will talk together about um two of the most growing markets that we decided to combine in uh in the same panel uh defy and um and crypto derivatives so we have one hour together

um and um yeah we'll also appreciate if you have any question we'll keep uh sometimes at TM to get questions from the from the audience um okay let's start so maybe we start with uh with a with the presentation I will I will stop my name is Jeremy I've been in in the space for uh since the 2018 uh involved uh also with the crypto value for the last five years and now I'm a board member of this president of the association and I'm also working for adnavoom which is uh engineering and cyber security company for uh fintech and banking uh based in Zurich Bern and uh and Luzan where I'm based so I'm more

from on from the French speaking area of Switzerland and yeah today I have the chance to have a four amazing uh panelists so let's start with you Noel can you say a few words about about you yes good afternoon everyone my name is Noah Atchison I'm head of Market insights at Genesis trading which is the Market's leading digital asset Prime broker we're the largest crypto lender for institutions in the space they've been doing OTC since 2013 and also derivatives and custody I got into this space in 2014 I've been researching it from a Market's perspective since then because I'm a total Capital markets nerd before joining Genesis a year ago I was head of research at coindesk and I've always tried to look at the space

through the institutional lens because as I'm sure we'll get into the institutional liquidity is part of what gives the markets validity which funnels funding nothing I say is investment advice obviously and these are my opinions not those of my employer and I feel very privileged to be here with all of you today I've learned so much since I got here yesterday Genesis I should say is based in New York we also have teams in London and Singapore I came from Spain though where I'm very grateful to be able to live hi I'm I'm Chief investment office here at [Music] fully licensed finma regulated Swiss

bank a hundred percent digital with a broad and growing crypto offering but I think we'll as we'll discuss later uh it's quite nice to have the ability to do your crypto and your non-crypto in one place so I'm very excited to be here joining all the crypto experts which I am trying to become and I look forward to the discussion hi guys my name is Piers I am the CEO of RDX Works which is a core developer of the decentralized finance protocol Radix which is a public Ledger entirely dedicated to decentralized finance uh Radix actually started as a research development project back in 2013 into

large-scale decentralized uh public Ledger scalability but in 2019 we realized that the main constraint of the market actually wasn't scalability everyone says it is but if you look at the numbers uh in the last two years Capital has 220xed in the space but developers are only 2xed there are 18 and a half thousand D5 developers currently developing today which makes one developer worth 11.5 million dollars in total value locked which tells you why an average developer's salary is between 200 and 300 000 in the space we realize that's the major constraints so what we did is we created an incredibly easy way to build defy by following what

games industry did back in the 1990s by creating a defy engine that gives you all of the fundamental low-level difficult things like safe asset transfers like asset swapping and things like that and put it into a really elegant language called scripto which makes it incredibly easy to build decentralized Finance to address actually what the key concern of the D5 Market is which is Talent hi everyone my name is Patrick I'm the head business development at bitrex global bittrex global is an OG cryptocurrency exchange forms it back in 2014 in the US um because of regulations we are tend to split the exchange into two parts

basically so we have the U.S exchange on the one end and then we have the global exchange that's where I'm employed um and yeah we are very happy to be here because we are the only regulated Exchange in crypto Valley so we have our headquarters in Liechtenstein badutz um where we are regulated as a cryptocurrency exchange a token issuer and a token custodian and then we have as well a license in the Bermuda in Hamilton um and yeah our platform is here since 2014 we have never been hacked so you can really trade in a secure way on our platform

um yeah so happy to be here and to contribute to this this panel today thank you everybody so let's kick off now and um we'll start with defy and we'll start with PS because you are our D5 specialist today so I want to start with a provocative question uh so what we leave in the last few weeks and months we've seen some defy hacks we've seen some yield points of course Terra Luna so my question for you is that as D5 failed yeah it's a great question so like I think that um right now the the the view of the market is we have to we have to take a view on what went wrong with things like

Tara Luna why was that risk able to get so out of control uh we have to take a view on what it is that we're building these marketplaces for like what do you fight like one of my friends said to me a while ago he said D5 just feels like it's building marketplaces for three to three-legged donkeys like nothing in it is actually like interesting it's just lots and lots of like speculation and and often ponzis the thing is is that what D5 is doing is creating incredibly efficient markets for three-legged donkeys and why that's really interesting is because when you start applying that to real assets if you look at if you look at the capital markets a lot of people will say the the capital markets are very liquid they're not

actually you have a small percentage of the market that is very liquid the high cap stocks the hike the large bonds and then you have this very long tail of massive illiquidity and then what D5 has done is shown us how it's possible to create bootstrap bootstrap liquidity how it's possible to create communities that have a vested interest in making sure that those tokens are tradable and when you can start applying that to more asset classes that people care about like stocks and shares like derivatives are that are derivative instruments of stuff that matters like FX and stuff like that when you can start to apply that to Bringing real world assets onto Ledger and take all of that learning that's happening within D5 you start to see how D5 could actually be some of the

most effective ways of creating Capital markets in real assets as well as what has currently been a lot of playing around with technology but that's good because that that ability to play in that permissionless sort of like cowboy environment means that you can fail fast that you can quickly iterate and so what we're seeing has been a huge amount of nation that has come out of this and I think one of the things that and the reason I think these two things go together is derivatives are going to be a really important part of this as well they're going to be a really important part of the risk management process for D5 that just hasn't been there before that will start to become more and more important in making these markets feel more mature as well so no it's not dead

it's something I'd like to add Pierce says the feel fast thing what Defy is and even Legacy banks will tell you the same what it is is colossal experimentation at scale with real world economic incentives one we've never been able to do that before with any of the technologies that we had up until the blockchain and two of course experimentation is going to fail that's why it's called experimentation it's supposed to fail I would actually argue that in spite of the turmoil that we had a couple of weeks ago in fact because of the turmoil that we had a couple of weeks ago Defy is succeeding one it is weeding out the ideas that don't work or the previous panel talked about skeuomorphism we now know more than we used to we can continue to build but two did I actually worked there were some

there were a couple of isolated spectacular failures but everything else worked really well under great Market stress are we record Market stress diet didn't really depeg very much curve continued to do what it was supposed to do so I would say that with the mother of all Market stresses on the table if I succeeded and um so what's next what's next for defy uh uh what needs to be improved what's next and uh I don't know maybe maybe yes so I I think that the the next um phase is going to be split into um two two parts I think what one one part is going to be more uh regulated assets will appear on default on top of

public ledgers so like I don't see uh regulated perimeters as being um the opposite of what D5 is so for me D5 is financial applications built on top of public infrastructure the public infrastructure being decentralized is eventually important because if you're going to build a Global Financial system you want the infrastructure that's built on it to be supernational and super corporate you don't want it to be able to fail as a result of a single nation or a single company so that's why it's a really good place to build it the other thing that you get is that if you choose to build on a public Ledger you're suddenly instantly compatible with everything else that's built on top of that ledger you don't have to have you know sort of um the long application process to that

you would have to do if you wanted to build something against the London Stock Exchange because you don't have to get access to the apis and all that kind of stuff if you build an application on top of a public Ledger it's now instantly interoperable with all those other applications and the assets that are within them but there is kycaml and all that kind of stuff that's necessary to be able to bring things like stocks and shares to be able to bring things like property to be able to things that look like Securities but what's already happening with things like RV Pro is going well what if we gate access to these to to these uh D5 apps but what if we have several apps within that Garden so I think that what you're going to start to see is what looks a little bit like

various access levels on on public decentralized ledgers that allow you to have regulated assets in there that can get all of the benefit of community provided liquidity Community provided trading volume all of this kind of stuff that is really great but you can start to also bring some serious asset classes into the space because ultimately the capital markets are increasingly staffed of yield and this ability to be able to find more yield by creating better less intermediated Financial products is going to continue to attract larger and larger amounts of capital into this space as long as those things can be solved and then on the other side I think derivatives is is the number one thing that's going to be huge because

Tara Luna what would happen if Terra Luna had been able to buy a short on itself like it what if what if that had been possible right because it was it was it was growing so much it could have done it could have sold along and bought ashore to fund its position and then if the if the if the market had collapsed it would then have been fully hedged so things like that mean that you can start to manage the volatility risk that just wasn't possible before so that's why I think Jervis is going to be huge yeah perfect perfect transition um but before going die dipping dive diver and derivative that I just want to also position it and ask a question for USD to explain to our audience so what

really are crypto derivatives and why do you think they are important uh on the market sure well I think you just gave a very good example of how they can be be useful the way we look at it mainly is through contracts for different so cfds which allows you to gain exposure to any asset including obviously crypto without having to own it you can have you can go long or you can go short so you can have either view that you want and you can be leveraged so you can enhance whichever play you're trying to make in terms of the uses I mean that's I'd say one very specific example that feels like it would have been unlikely even if it was more possible I don't

think I don't think the market was thinking that way uh before the crash um and I think even discussing what you both mentioned before there probably needed to be a little bit of weeding out and and calming and cooling of the market in general but there are a couple things to keep in mind the first is hedging so that was one example but of course if uh you're worried about your positions if you want to just have uh some crypto exposure as a hedge but um and no offense to all the crypto experts have to deal with getting your wallet and getting everything set up you can have that exposure either long or short so it can hedge either your long exposures that you already have or it can hedge other parts of your portfolio

with some crypto exposure the other thing is uh and and this was mentioned in the panel before about the level of or maybe even before before about the level of volatility of the crypto Market and it's true that people keep saying cryptos volatile cryptos volatile and if you look over the last few years and the Peaks and the troughs and of course when you drop more than 50 you can't call that not volatile but if you just look at the last couple of months now for those who were hoping to go back to the November Peaks very quickly it didn't happen but you did have some form of stabilization come into the crypto Market you look at and you would you said it was a success because so many things held up

if you look at Bitcoin you look at ethereum they they held up relatively well given the whole lunatara situation so the volatility has come down a little bit now if we bring this back to derivatives when you're in that type of Market where not that much is happening and we've really been in a broad trading range for a number of months now the derivatives derivatives allow you to make money within that trading range you don't have to always be long you don't have to go out and buy and wait until the market recovers which I'm assuming everyone in this room believes it will you can take advantage of this type of situation you can play different headlines whether it was uh you know the jobs Market uh half an hour ago whether

it'll be the the FED meeting in a couple of weeks you know that some of these are going to be triggers for the market and the CR and the derivatives Market will allow you to be very specific and very short term but take advantage of the trading rage rather than sort of suffering through it until the market does better thank you and now I want to connect that with the institutional and to you Patrick because your main clients are institutional so why are crypto derivatives needed by this institutional investors exactly exactly I think SD touched a lot of point there right um the main the main goal for institutionals I think is hatching their positions right if this is a nest manager if this is a hedge fund they

have certain exposure I don't want to make sure that they can somehow limit the downside right and protect protect what they are having so if we take a step back for example and look at how the derivatives Market in crypto developed so far we saw that most of the volume was driven by retail so with all these perps right so they were betting on private moves they wanted to leverage their positions to make money to make fast money and now with institutionals coming in um you see the shift from perpetuals more towards more sophisticated derivatives like options or Futures

Futures you trade them for example at CME or as well options you have different platforms but the problem there is and this is as well the thing that the correlation no longer is close to one let's say within crypto is we only have options on bitcoin on ethereum and I think since a few weeks we have Solana as well but these are just three assets and we have thousands of assets and you cannot properly hatch them so what can you do you can just do a proxy hatch but that wouldn't have worked for Luna right so you cannot you cannot hatch your possession with PTC proxy Edge to for Luna so there there is definitely a need

there that we need to ramp up the offering there to make sure that institutions can come in and properly hatch their position I think I think one of the things that with derivatives and I didn't say this before but there still needs to be a piece of innovation that hasn't happened yet so if you look at what happened in D5 one of the like uh one of the key um things that pushed decentralized Finance forwards was the emergence of uh decentralized exchanges and the uni Swap and the bancor models of constant function market makers was critical because what it did is it said look this is how you can create a virtual order

book for two assets but on on a constant curve so you don't have to have sophisticated market makers to be able to make both sides you can just put some assets in and we will create a market that will get deeper as more liquidity comes into it what is currently happening in derivative still is the traditional way of creating them right so use you a lot of a lot of uh if you're creating an option you'll be using the Black Shoals Merton model and you will be doing them as an individual priced asset you'll be going okay you need this much on this date I will price you now and I will decide from my book of assets how much risk I'm willing to take on that option right I think that there's something that needs to happen I

don't know I don't know what is going to happen in the next six to 12 months but I see some projects like potion finance and stuff like that that are starting to understand that it is possible to create some kind of automated pricing for long-dated options where you can where you can do the same thing a community can come along create liquidities for something and enable the emergence of a market price dynamic between buyers and sellers that create the pricing as a result of their interactions which is what's happening with things like uni swap that still needs to happen for derivatives on top of public ledgers to work properly and until that happens most of it's going to happen on on it on exchanges and I don't know exactly what it's going to look

like but then that will solve the problem because the whole point of things like decentralized exchanges like uni Swap and like bancor is it enable communities to go this is a long tail asset but we want it to be liquid same thing is going to happen with options and derivatives they're going to go this is a long tail asset but we want it to be possible for there to be hedging on it so we as a community will work out how much Capital we're willing to make put into that to make sure that's possible and and I think teams will also start to incentivize them up for for happening because they understand how important hedging is for you know for example foundations and the tokens that they have or whatever it happens to be there's lots and lots of risk that D5 projects and companies that are funded

by tokens are taken constantly of their own treasury like companies fail as a result of bear markets just because of that so I think that that that idea of incentivizing your community to help you create hedging products as as there was in this first phase of defy incentivizing your community to help create liquidity that's going to emerge as a big as a big Trend in the next sort of year or so I have a couple of quick things to add on to that one the access to derivative does very much depend on regulatory structures and that still is lamentably very fragmented around the world at Genesis for instance we can deal in a very wide range of derivatives including some of the ones mentioned because of our regulatory structure so it's not as liquid as it could be but it certainly is liquid enough for the

institutions on most of the large cap assets and even going down to some of the lower ones two use cases for derivatives which is again bringing back to the institutional side that I find particularly intriguing one is at Genesis we've seen a lot of funds recently take out short positions on Tether now this is taking out short position on a stable coin which is not very intuitive but one we all know that there are many people who have a bearish view on Tether that are concerned about its stability and even if you're not concerned about its stability a short run tear there is a hedge against the entire Market if tether depegs the market is in serious trouble so you can recoup some of your losses there but putting my analyst hat on for a second where I most enjoy about these markets I don't participate myself but it's the

sentiment data when you have a liquid and reliable idea of the average mood through skew through the funding rates through all sorts of all sorts of products that you don't get in the spot markets then that just adds to the richness of the information and insight that we can get into a market that we couldn't get without that liquid I've heard my my favorite word of those last few weeks is correlation yeah I think you you were talking about Coalition so maybe for USD what do you think about the correlation is it transitory to take this word or what's your view on this correlation between the crypto and a cultural Market well actually Noel and I were talking about

it just before the panel it's been uh I think it's when one of the big generalizations that non-crypto people have used I'd say against crypto is the rise in the correlation of crypto with risk assets in general with U.S equities in particular and of course with the NASDAQ at the top at the at the peak we were at 0.8.9 correlation so whatever U.S tech did crypto did um and it was still that way it was still Tech leading the way not Tech following now it seems to have been starting to come down more recently in part because Tech has actually started to rebound despite uh a lot of people not noticing because it's been pretty

painful in markets but Tech has started to outperform and to rebound a bit and with I'd say some of the Fallout from from the Terra Luna situation we're still not seeing so much recovery across a number of the crypto assets but if you take a step back crypto in general is still a young asset class we have a lot of experts over the last two days who've been involved since I think 2012 as maybe one of the earliest dates I've heard very often maybe 2017 2018 but most people got in a lot later so the majority of the people first of all they got in at the wrong time but maybe that's a different conversation although hedging certainly could have

helped some of those investors that started coming into crypto during covid you can't generalize a six-month correlation to tech stocks on an asset class that has only become Broad and I'd say with some generalized adoption because we're still in the early stages so soon we've we know there have been a number of Bitcoin Cycles we know there have been reactions to some of the to the the havings at the moment and recently there's been a reaction like U.S tech probably a little bit of a bubble at the end of last year definitely fears about liquidity withdrawal and certainly in both cases a little bit of this deflation after all

of the covid boom I'd say whether that was because people sat at home got stimulus checks everyone's decided that trading is trendy and people got into it so you can't make that I think it's where we've been in somewhat not normal market conditions traditional and crypto for the last couple of years correlation hurt maybe crypto for a little while I think if it stays a little bit High it'll probably be a positive for crypto over the second half of the year we're going to start to see improvements there and I think if the correlation comes down and I think it will at some point over time I don't think this is a set correlation then

we're going to see the asset class develop on its own a lot better and it'll be one period of time before I hand over I'm sure others have their thoughts for the last couple of months you've had a very high correlation between stocks and bonds which are normally inversely correlated and finally a couple of weeks ago that started to stop so those periods of positive correlation are short no one's questioning well some I'm sure are but few are questioning the utility potentially of having bonds to hedge some of your Equity portfolio I think at some point we're going to get to that conversation that crypto isn't automatically correlated with your equities and it does have a diversified diversifier property for your portfolio

anybody else wanna yeah I think if you look at coloration there are certain factors you need to consider right um especially in a downturn correlation tends to be or gets closer to one so we had that in the last couple of months if not years if we include covet um so I think this is one factor so let's see what's going to happen if the market turns around but when is the market going to turn around we don't know we are all expecting some sort of recession so let's see what's going to happen maybe once we get in a more positive scenario we will probably see a decoupling of correlation and I think another Factor we need to consider is the correlation was very low between

crypto and traditional Assets in my opinion as well because in crypto for a long time you just had retail customers and no institutionals and now if more institutional is coming into the space correlation correlation went closer to one right and if so I think it's it's not it's hard to say what's really driving the correlation at the moment so we really need to consider a few factors there but do we want correction or not because uh I remember if you it depends on your point of view but uh it depends on how you look at crypto right um I'm crypto native so for me crypto is everything but if you look at traditional players asset managers they

look at crypto as an alternative investment right so they're probably just going to invest like if it comes high five percent of their portfolio into crypto and what they are looking for is a local coloration correlation right they don't want correlation to be at one obviously because alternative Investments are there to you know spice up the portfolio somehow so I think it really depends in through what lens you're looking at at it so I think the the like measuring the correlation of the entire crypto Market against them measuring the correlation against the entire Tech Market probably loses loses the point somewhat like there are certain assets within crypto that we uh believe should be low

correlation like Bitcoin should be if it is the promise that it says it is of digital gold should be low correlation with or at least inversely correlated with uh the tech Market or we or with the the financial markets where where people are looking for safe places to put their money during areas of my areas of Market uncertainty you should expect it to see the go they go the other way the thing is is it's still a risk on asset but long term I think that Bitcoin continues to fulfill its promise it should start to look more and more like gold but if you're looking at the rest of the crypto Market the crypto Market itself like if you think about the the majority of the assets that are being used today are within D5 within decentralized finance

and the purpose of um the global Capital markets as a whole is is one thing really it's efficient allocation of capital and what is happening when you have a a an entire platform that is is trying to make it more efficient and programmatic to allocate Capital during a period where the global market is pulling back and going whoa it's a little bit worrying at the moment so we're just going to pull our Capital out is you're just seeing a reflection of the desires of the investors that are being reflected in the value of the platforms because it is just an allocation of capital tool right so if you as an investor are going I'm not feeling very bullish I'm going to pull out of my yield farming I'm going to pull out of this governance token or

whatever it is just is just reflective of the global sentiment because that's what this tool is being made to do it's being made to facilitate capital location so you can separate some assets and go these are probably Hedges like Bitcoin um in time and then other assets is just it's just the global economy and it's not really yeah it's correlated because that's what it is it appears as touched on an interesting battle that we're seeing play out in crypto markets macro allocators look for low correlation because they want the diversification and we know that the crypto Market is generally pretty highly correlated largely because of the massive weight of Bitcoin and ethereum but there are narratives going down the cap table

there are narratives that are totally different to bitcoin ethereum there are opportunities that any investor where they take the time to look into them would find completely off of the scale when it comes to does this fit into the rest of the portfolio and the more investors start to look for low correlations the more they are going to realize that they're going to find it lower down the market caps and that is going to bring funding to some of the Lesser capitalized assets increase their Market increase the liquidity increase the interest in derivatives increase the sophistication of the market as a whole which is a net positive both for the crypto native investors as well as the macro investors looking for that diversification opportunity well I was going to say it feels almost a bit like a double-edged sword right

you want Mass adoption you want people to buy into blockchain into crypto you want more and more people to have it but with that probably brings somewhat higher correlation and I agree it might not be across the market equally and I think again the event of the last few weeks are starting to show more Divergence and more differentiation between different cryptocurrencies but if you have more and more people in traditional markets or in traditional portfolios adding um cryptocurrencies it is going to increase your correlation so it's it's kind of either a win-win or lose-lose but it's it's that double-edged sword that I think the crypto universe is navigating in general

we had a very interesting talk before uh on bitcoin that is uh specially close to my heart and can you say a few words about uh the current uh Bitcoin market dominance and its impact on on this market right now is uh can we do a Bitcoin moment right now Bitcoin moment area actually it's super interesting because just earlier today bitcoin's dominance broke through 47 of the market for the first time since October 2021 the last time it broke through this level was during the whole excitement about the Bitcoin the Bitcoin based ETF in New York where Bitcoin was massively outperforming was a strong market then the time before that that the dominance broke through 47 was July 2021 which was

a pretty bad Market arguably very close to the local low at the time does that mean we're near local low again don't know not necessarily nothing I say is investment advice but here's the interesting why is bitcoin's dominance increasing in a bad Market because we at Genesis are seeing a lot of funds rotate out of them more volatile assets the alts we call them into but huge air quotes here the safe asset of Bitcoin now obviously bitcoin's not safe and I think it saves investment advice once again but relatively speaking it is the Blue Chip of the market and a lot of investors see it as the safe option within this risky Paradigm so that is why that's the story that you get from this this fascinating metric of Bitcoin

dominance now here's another thing it is going to increase the opportunities further down because they are largely right now being overlooked and depending on your investment thesis could possibly oversold I won't repeat about the whole thing about not being investment advice you know you know the drill but that's why the market right now is especially fascinating it's a fairly Bleak market in terms of sentiment including from derivatives data we're seeing that too but Bitcoins role is obviously being de-risked from any of the macro portfolios because of the high correlation they're just de-risking anything that has a high volatility but at the same time it is gaining prominence in its role in many crypto-diversified portfolios yeah I think as well if you look at the

Cycles because you normally have these kind of Cycles in the crypto crypto markets right so if the market pumps normally first it's Bitcoin who pumps then you have Eve and then you have all the old call me later same thing happens when there is a is a crash right so first Bitcoin goes down and then the rest goes down and when the rest goes down you normally see the shift from altcoins into Bitcoin right so I think this is quite quite interesting as well in crypto it was a bit more dominant uh I would say a few years back it came a big back but it's still there the pattern is still there okay thank you and um let's let's stay with you Patrick

and come back to Switzerland because it's our country you you explain to me how important our derivatives market for for Switzerland can you can you tell us exactly uh what is the position of Switzerland in the crypto derivative Market sure so maybe a little background so I was working in derivatives here in Switzerland at the major Bank in traditional finance and given that background and I was working in structural products and Switzerland is probably one of the biggest markets in Structured Products globally um a huge huge volumes are in there I was working in equity derivatives and if you look at Structured Products in

particular I mean like Noel you probably know better because you guys take the risk and you structure that kind of thing but if you look at if you look at these kind of products it's very interesting because you get more and more demand from customers now I'm talking about dual currency swaps I'm talking about Capital protection notes or yield enhancement products and if you look at the volatility we are having especially for your enhancement products where you are going short a put for example that just creates a very attractive yield for for investors obviously you have to consider a risk as well but that's crazy if you compare it to all the other asset classes so if you

take crypto as an underlying to structure nice product with a customizable payoff that can add a huge benefit to your portfolio and can we compare Switzerland versus Europe maybe well I'm not very sure about crypto how it's evolving in terms of structure product I think Switzerland Switzerland is still very strong um obviously we have a lot of flow in Europe as well but I think what is going to be crucial for the market and as well for Switzerland is how we are going to regulate that and once we have proper regulation in place I hope we will see

more and more inflows there as well from traditional players okay excellent so maybe Noel what for for your point of view why do you think the market is safer uh thanks to the derivative and is it now the good time uh for the institution to to come back on the market after what we experienced I think it depends what you mean by safe and I think of what you really want to save crypto is probably not the right benefit to be investing in so but safe being a relative word as we were talking about before it is true that two things one derivatives do make it more liquid make it easier to present an opinion make it easier to take a long position

that you can hedge a more mature Market is safer than a less mature Market again safe being a relative word here when it comes down to again safety though I think what we're talking about is the assurance that you're not you might lose money but that's investing for you there's no term without risk that you're not going to get in a huge amount of trouble that you're not going to be dealing in anything illegal no fund no Institutional Investor wants to even go close to anything like that the reputational risk and over the past few years and I've been covering this market now since 2015. over the past few years that is the biggest change it's the reduction in regulatory risk I mean four years ago there was a chance this could have been banned some politicians are talking about it that's pretty much off

the table now and the caliber of the institutional investors that are focusing on this space now and the number of Legacy banks that are building teams and developing projects not to mention entire subsidiaries for this that's taking the regulatory risk off the table and I think that is the main thing that the institutions are worried about they don't think of crypto as a safe space they think of it as a potentially High return space what they want to be sure of is that it is regulatorily relatively safe and obviously there's still a lot of work to be done as we've seen over the past few weeks but the change over the past few years I would say has been one of the most most astonishing the fact that we had an executive order come down from the higher from the highest office in

the land that regulates the largest Capital markets in the world that was supportive of the space I think it's also one of the most astonishing things to happen this year so far so we talk quite a lot about the whole edging role of of the derivative but we didn't talk too much about leveraging um anybody you want to talk about the extram leverage that we've seen on market and what impact could have been uh of where I don't know 100x leverage we've seen on some platform not yours but uh any anybody want to talk about about it this this point I I can I can take a stab at that I think again you have to keep in mind

of what investors you're referring to and of course I think the institutional space is going to be much more cautious and and much more structured in the way it invests but if you think back to the last couple of years you had this Confluence of events that led to a lot more people looking at the space and investing in the space and then you heard more and more stories about all these people getting so rich with their Bitcoin and you had people stuck at home you had people who didn't want to go back to certain service jobs and were still seeing the consequences of that you had people who thought I want to join the party and at some point agreed took over a little bit it's often the the retail investors that

want to do that even quicker it's often the retail investors that come in a little late to the party and they're the ones who suffered the most in the last six months uh from the deflation of the whole asset class not just in crypto um and they're often the ones who probably don't understand exactly what leverage entails I think they see the upside a lot more than the downside we see it very often with clients we've done training with some of some clients and some colleagues recently and most of it was about explaining like a stop loss or a margin call or what happens when things go wrong and we got to a point where the market was going up

so much and so fast that I remember last year everyone was waiting for a hundred thousand on bitcoin some people have a few more zeros behind that but not with a six-month Horizon and people thought oh is you know 48 000 a good resistance to to dive in because I missed the last little bit or just you know compared to where we were a year before that so you need to have a little bit of Education of the the universe in general and and again this isn't just for crypto this is for leverage in general because I think the people who took some of the more extreme leverage were the people who are newer to the asset classes and really just only saw how high it could possibly go so I think

that's where you you have to be a little cautious um and that's why I think on this panel we've been talking more about the hedging properties maybe about taking advantage of a trading range and not necessarily talking about derivatives as this way of of boosting your returns uh very quickly I think one of the brilliant things that has been happening in D5 is we we're seeing basically the last hundred years of um Financial Market learnings being replayed very quickly uh this this particular phase let's call it uh leverage isn't always good

um the thing that I think was spectacular about this particular deleveraging that happened and the cascading liquidations and all that kind of stuff and I haven't actually seen anyone that it literally just occurred to me now I haven't seen anyone comment on it but the lack of the fact that it's instant settlement I think was one of the most important characteristics of it not actually leading to catastrophic failure like so what you saw in the banking system in the in the deleveraging that happened in the banking system it was the overnight lending rate that killed Banks because they don't because settlement was t plus one or t plus three or t plus five and being able to create smart contracts that are instant

settlement collateral license and settlement has meant that the deleveraging process though it was very painful actually didn't create a fundamental killing of a pro of a defy application like die you were talking about die die is a great example and make a Dao and like are they and all of these kind of things so that lack of settlement period means that there was this extra learning that happened but yeah I think the leverages like Leverage has its place and I think that that crypto has learned a lesson this time and we'll see how it sort of goes through to the next one especially when more hedging are going to keep talking about hedging projects products but when more hedging products come out as well to help take the other side risk of that and people thinking about Market neutral

strategies more than just pure risk-on strategies as well as thinking more about like yeah stop losses or you know um like buying put options and stuff like that and I think that's going to come in more when you combine that with Leverage that it's going to create its own set of problems but it's really interesting it comes down to the volatility that we're talking about earlier volatility has come down recently largely because investors actually don't know which way the Market's going so we're not going to bother to move it one way or the other but options derivatives are a bet on future volatility so if you think the volatility is going to increase who here thinks markets are going to get more volatile over the next few months then that makes derivatives a very intriguing possibility which will bring more

liquidity into the derivatives which will deepen the market sophistication etc etc all right thank you so we are approaching the end of our panel we have a few more minutes to take some questions from the audience so feel free to ask your question anybody to our panelist is there somebody no question yeah come on you can do it the first question no okay so I will I will ah yes thank you increase the the false

pulls down here can you repeat that question so I think the question was If the product range in derivative is going to increase if we see like more risk right basically in the market somehow so what I what I think is if if we if we are going to implement more products does not necessarily mean um the risk is going to increase because for me like the more innovation in

derivatives makes the market more mature you know so you can have proper risk management on your assets so in that sense I think it's it's going to be great but we need to be careful how we are going to regulate it right because if we are going to make them public or accessible for all Traders we are going to have problem obviously so we really need to have a proper proper regulatory framework to especially protect retail customers here the only thing I wanted to add is I think at the moment we've had such a such a hit to sentiment about crypto in

general I've even been surprised somewhat speaking to people over the last few days that you didn't have that exuberance of probably six months ago so I think that if you add products as the universe is growing today at least speculation is probably not top of the list because there's not so much confidence you were saying people don't really know where where we're going have we hit a bottom or not um so it's it can have investors have very short memories it can happen six or 12 months from now if suddenly cryptos and other assets recover faster than we think but it doesn't automatically lead to much more speculative excess definitely in the current environment

where there's so much doubt about how quickly cryptos can recover and I'll to add a bit onto that I'm going to suggest we step back into the distant Mists of time and look at the origins of the crypto Market it's the only liquid Market that we have today that sprung up from the ground up retail first spontaneously around the world with no coordinator regulation no coordinating technology they didn't even know what the others were doing basically so crypto is arguably the only truly free market in a liquid state that we have seen in history that I know of so the question really is there's there's no way to stop that kind of

innovation from happening it can be regulated away on the main capital markets that doesn't mean it's not going to happen somewhere else because crypto is a global market and so The Regulators are struggling with the decision to decide do we let this happen offshore where we can't control the risk where we can't even see what's happening or do we invite it into our nice well-lit freshly cleaned environment where we can one make sure that investors have the information they need to make the correct decisions and two keep an eye on what is happening in the markets my answer is yes in the short term no in the long term and the whole point is is that like these each time you have a a new set of instruments you have no incomplete information in Market about

what the total risk of those instruments are it creates a failure that creates more information in the market the market responds and understands how they should think about them the same thing happened in the in the mortgage Market collateralized debt obligations uh and credit default swaps weren't actually pricing the risk they're like so that the part of the reason that that that that that that failed was because there wasn't actually full understanding of what the risk basis for those assets were in the first place the same thing you can say about Luna right there wasn't full understanding about what the interaction between Luna and USD was going to be but now that is known that's going to create better products and it's going to create a safer environment so like yes there are going to be hiccups

on the way but long term because of that fast failure because of the fact that people can innovate quickly and I think we should push back on regulation on things like that for that particular reason because it helps us learn quicker so yeah I think I think there's still a short-term probably long time I'm bullish all right thanks so one more question two two and one taking something

products like the are any new crypto products on the horizon that you haven't heard of yeah all right two questions we want to answer either the first of discount okay well I'll take the institutional point of view here can you repeat the question the first question was are there any new crypto products on the horizon the answer is yes can't say more about that right now but watch this space yes there generally is there's just a lot of really smart people coming up with innovative ways to present risk which is what investors want and the previous question was to do with do we see the traditional institutions the

Legacy financial institutions developing crypto operations or is it the crypto operations becoming more like Legacy institutions JP Morgan and EMP right now probably utilizing blockchain technology and are you like it's in traditional planetary it largely exists already Genesis for instance is the largest crypto lender in the world intraday is not something that we've seen demand for yet but repo like products is something that we we do have a lot of demand for something that we we do a lot of work in it's going to happen when the institutions want it my

personal take on this apart from what the institutions are asking for is that crypto is it is the perfect asset for intraday repo because it is a liquid Bearer asset and as such the best type of collateral you can possibly have it can also be programmatic there's a lot less risk of human error this is precisely what FTX is trying to negotiate with the cftc right now to change the way traditional derivatives even are cleared to bring in some of the efficiencies in the crypto Market to traditional markets so the answer to both your questions is yes watch this space has a lot of innovation coming along that space and and we already are seeing quite a lot of activity in this field I think as well um what you see is maybe not focused on

crypto but more on the blockchain right you see a lot of banks now testing out blockchain how can they use blockchain to make processes more efficient right so that you can you know eliminate the middle office or the back office to make it just more efficient for example in the derivative space in Structured Products so you take a token you program your token with the proper um with the proper payoff so you don't have to do anything everything is automated so the Redemption is automated the interest payments are automated everything is automated on that token right so I think that's the major banks are mainly focusing their teams to look at that especially in

Switzerland U.S is a different story with building trading desks Etc but I think in Switzerland that's where we are at the moment yeah last word or I see uh once again I can say very very quickly my opinion on private networks is that they're not going to succeed and the reason they're not going to succeed is the activation energy required to get someone else to join the private Network versus if you're on a public network you're automatically compatible with others so I think you're going to start to see institutions bringing those assets onto public ledgers but absolutely those use cases are interested lending is yes and if you want a really interesting protocol um that uh I think is to go in the right way for derivatives something called

potion.finance they're using something called The Kelly Criterion to price options instead of the Black Shoals Merton model I think it's really interesting not investment advice excellent so we are now at the end thank you thank you very much to our panelists now there is a coffee break and you can come back in this room for the crypto vce panel if you want