Flash Talk by Albana Rodríguez Capurro - CSO ,Twin

Hi, thank you for having me here. So I it's a very short uh talk so I'm going to start right away. The title is the quite obvious and yet forgotten secrets of the traditional financial system. Why? Because I come from drat five.

So that's what I'm going to talk you about. Value is not inherent in things. It arises from how they serve human purposes. This was said but by by Frederick heek. He was a Nobel Prize in economics from the austrian school of economics.

The Austrians also said that the role of the financial system is to guide idle capital towards the most productive sectors of the economy where new value is created and true yield originates based on the information contained in prices and in in interest rates. the the blockchain revolution blockchain revolution and therefore DeFi was born embracing these same principles. We trust that free markets and transparent pricing is better than a central authority to organize value across the economy. But uh DeFi is not fulfilling this this this role anymore. We were we we use decentralized prices, decentralized governance, decentralized liquidation because we feel that it's the best way of organized a market.

But today what I feel is that value creation in DeFi is not happening anymore. for a long time now. Defi is like repackaging into one click the same three or four ideas, the same building blocks or maybe leveraging or releveraging or rehypotheticating everything. We used to have two-digit yields in DeFi. We got used to that.

But that yield came from investors money trying to incentivate the adoption of new projects. Maybe it was like Dows printing tokens or it was investment, private investment behind the projects, backing projects, but it was never value creation. So it was never sustainable. And what we found out is that when technology is efficient, liquidity has no loyalty. So it is very easy for crypto defy capital to move quickly to another project that has better incentives as soon as we cut incentives in the in the previous one.

So the AC money is fading and the model is clearly running out of steam because conversion of that investment did not prove to be very effective. So today the the only way to keep on up the yields in in DeFi is to take it on leverage or to do private deals. But the thing with private deals is remember it used to be don't trust verify. We cannot verify private deals. So today I feel I honestly feel that we're fooling the DeFi users.

I'm an economist and I come from private banking. I started my career h at a trading desk trading fixed income, equity, options, structured products. That's where I found out how about price formation. Later on, I went into private banking as a financial advisor where I learned how to build risk adjusted portfolios for different kinds of users. So the first time I thought about bringing real world assets into DeFi, the obvious question was how is this automatic decentralized system running 24/7 going to take reliable prices from a financial world where markets are fragmented, often negotiated and it runs on market hours.

So I thought, okay, DeFi likes transparency, DeFi likes liquidity. Let's start by the most transparent and liquid assets and then we see how we fill the blanks if we do market making or whatever. But to my I had two surprises in what's happening the last in the during the last months in DeFi. First of all, no one seems to care about this. I see assets with off-chain collateral trading at hard-coded $1 price priced by the same issuers of the assets as if it was always par.

No one cares about valuating the offchain collateral that is backing that token. And those tokens end up in lending markets where price dynamics that can trigger liquidations are the only protection that lenders have. So that's my first surprise. My second surprise is that the assets that we are choosing to bring on chain are the most illquid and non-transparent assets we have on Trafi, the private loans. So everyone is bringing private loans on chain.

private loan funds or CLOS's. Um really it it was a surprise to me because of course private loans are excellent as a collateral in a in a lending market because the NAB is stable. It's manually priced and it moves like once a week or one or twice a week. So it does not generate liquidations. But does that mean that the assets are safe?

Of course not. it only means that we have no information and the same happens with CLOS's and of course it's great if you if we use a big institution to manage the CLOS's and we say they are investment grade but the thing is that these same big banks and these same credit rating agencies that are today pricing and rating the CLOS's are the same ones who created the 2008 crisis with assets that were very similar to this and all this institutions are still alive because they were all doing the same thing, but that's that doesn't mean they did it right. So, it's not that I'm against private loans per se, but I hear that people when they sell their assets, they say, "Okay, so treasury rates went down. So, now we are going to get the next step, investment grade uh loans." Okay.

But they don't say the small detail that we are not getting publicly traded bonds. We are getting private loans but they don't have a secondary market. They don't trade offchain. So we don't have a mark to market. There's no transparency.

So what I think is that we are fooling the DeFi users. We are not we are gatekeeping information. I'm not against using private loans again, but I'm against poor risk assessment or building business built on information asymmetry because this is what brings systemic risk and whenever I say okay why don't we bring more liquid more moderate better quality assets on chain everyone for every audience answers the same defi won't like it they only want yield as if defa users were dumb as if as if they couldn't understand the concept of risk adjusted yield because it's not only how much money you made it is how did you make that money how much risk did you take so I don't agree I think we need to bring I need to we think we need to bring good real asset on chain make a a better effort on transparency because we can do it much better than what is done today. I also think we need a v variety of assets on chain because assets are not good or bad per se. They are good for a bad they they are suitable or unsuitable for the goals or object and the objectives of the user.

So we need lots of different assets because we we have different kinds of users and we also need to bring advisory on chain because it's really fun to toize a stock or a famous index because no it brings like the adrenaline that maybe DeFi likes but we also need to bring balanced uh assets for all kinds of users. We need to help people make their decisions. So advisory is something that we we we shouldn't be leaving out of the equation. So I am a very critic on traditional finance and I think that if Hayek saw today what the Fed is doing with the rates and all the distortion they are bringing he would die again. But it's sad to say that traditional finance is still allocating capital in a far much more efficient way than DeFi.

So for me the road map is bringing more better and more transparent assets on chain combining them to meet the real needs of our users. Leverage technology and infrastructure built throughout these years because I really treasure that technology build trust standards and education and help the industry mature. So let's help defy replace stratfi together. Thank you.