The Power of DeFi Market Data - TOKEN2049 London 2022

thanks for being there obviously I'm gonna talk about defy Market data I want to talk about defy in a C5 week and more specifically on why do we think that the market that are in the space is one of the key to go forward kaiko with kaiko kaiko is a data vendor we have been created in 2014 so around in a space for some long time we provide we are leading crypto Market data provider provide connecting to more than 150 exchanges but also decentralized Financial exchanges and we distribute that data across the financial markets to banks financial institutions other resellers and a number of other players like startups but also academics this is to showcase the kind of clients we have all these names are actual clients we got on the top left research from institutions like the oecd or or masary for instance the buy side financial markets product issuers and viennesian infrastructures Geico is really part of of the game I want to talk today about defy it's a it's a very funny week with what happened with FDX I wanna I wanna focus on defy and the first thing I want to say is that defy decentralized Finance and the automated Market maker that comes with it is the most Innovative Market structure that has been around in the last 25 years my own background is from exchanges in the regulated industry I was the first salaryman of the energy Exchange in Europe I was the general counsel of this exchange and I can and I started working in the early 2000s when the exchanges shifted from pitt to digitalization what we had seen at the at the time was a massive opening of the marker a massive opening of the market it was infeasible for the market participants in the mind to shift from pit to electronic and what's going to happen with D5 is exactly the same thing a massive opening on the market the reason why is that the three elements that I'm mentioning here haven't been around for I've never been around they've been invented with D5 so it's the first time in the financial industry that you can represent cash and the asset with the same instrument namely the token this is the first time ever ever since Finance was invested in in the Middle Ages that we can represent money and the asset with the same instrument is the first time in the history that I can transfer that to you directly from my account to your own account actually we do that with cash you know with um the actual cash if I if I if I give my cash to you you have it but ever since it was more sophisticated it's intermediated I'm not part of those who say there is no intermediation anymore but I'm saying that when you have when you have the token into your account through a D5 protocol your net and that is going to open market dramatically it's the first time ever that this happens the automation of the transfer of an instrument through a computer program Defy is underestimated this is data we produce it shows that the market share of D5 is around 30 to 40 percent in crypto market today it's a hedgehog thing it went up to even to 60 if we compare for instance uni swap with coinbase but the trading in defy accounts for more than we think the second reason why Defy is going to be part of the game is that the bridge is starting to being built with traditional Finance so first crypto native created D5 protocols and now what we observe is financial institutions like JPMorgan Onyx this week or the bis with project Mariana are considering D5 protocols to manage the instruments that they want that they want to promote on this technology actually D5 protocols they've been invented a few years ago as a response to another crash not this year's crash but one of the crashes before and they are just a great invention defy Protocols are about a computer program managing the swap between two assets so say you want to get rid of stocks and and and you want to buy other stocks today you have to do two operations you have to do a sell and to do a buy well tomorrow you can just swap this is what's going to come if you manage if you're part of a big company managing the balance sheet and the reserves of your of your financial assets and you want to swap for I don't know whatever internal group purposes or any other purpose you just swap get rid of Tesla and acquire IBM and the price is a synthetic information that that is just deriving from the amount of token you can exchange against the other tokens I don't know I can exchange a kilo of rise against four eggs so we are back to the basics of the finance mechanisms down in the way way for it's going to be the same D5 Protocols are the same the price is a synthetic thing instead of of saying I'm gonna sell for that price and buy for that price well I'm Gonna Give You X and an exchange of Y amount of tokens and this X and Y makes the price therefore is data driven what I'm saying here is that in the previous slide we saw Defy is a reality today in crypto with this slide we see that Define is going to be a reality tomorrow in current Finance so stocks bonds Structured Products swaps Futures and options you name it uh you name it so Onyx did a first experiment called called project guardian and this one is a very interesting one if you're a central bank and you want to exchange you want to manage your stock of central bank money well you want to exchange Euros against Singaporean dollars or you want to exchange Euros against Swiss Francs well there are central banks are being studying I've studied automated markets maker systems for a year and a half now so there is a narrative that is very crypto and it's a valid one D5 protocols bring a new field of liquidity but there is also another narrative that not many people know that D5 Protocols are probably part of the game are probably some of the future Market infrastructure that we will have um to deal with in the future and no later than in August the G20 said it so there's the crypto narrative and the fight between stablecoin and and cbdc's Etc but in fact Defy is there to stay the word is a new normal like after kovid so this is not a crypto native we say that it's the G20 and the reason why they said it is that all The Regulators all across the world they have produced papers around D5 studying the phenomena that was around crypto assets but what they pointed out was oh my God there's a new market infrastructure is it is as powerful as the digitalization of the markets in the late 90s all those ripples what they do between 30 and 60 80 pages some of them are even not any more ripples but working plan the list the issues for a massive adoption a translation of this or usage of these protocols within the traditional Finance and the list all the topics yes there are problems there was the Terra Luna crash I'm just gonna come back later on that you've got AML kyc you have to over collateralize to transfer assets while Finance is all about credits how do we do um maybe we don't know how to manage any potential Market abuse if there is any so there are a number of problems cyber threats operational resiliency but if you read those documents they are written in the format of a program of a working program and their massive investment by banks by institutions by regulators on how do we handle this new market infrastructure in the future so tomorrow in D5 you will have uni swap based or curve-based or RV based or similar protocol based Market infrastructure not only for cryptos but only for but but also for financial instruments so once we've said that why did I call my topic the power of data and sorry for the funny name but you have to advertise okay if it's a new market infrastructure it's a market infrastructure in the first place so we have someone has to provide the market with the data that Traders need to operate on that infrastructure Traders research and Analysis free trade Trade Post trade what do they need data for they need data for back testing trading strategies for instance if I want to not only trade on centralized exchanges but use these new pools of liquidity and benefit from a price difference for instance what I need to train an algorithm I need a huge set of data and and I need to back test before I go and enter the market research and Analysis would probably come before that with the research and development department you know telling me okay it's a new asset class how does it behave it took years in the old in the centralized order book in this digitalized format to figure out that well if you send a huge order it's going to have an impact in the price what are the mechanisms you know the financial industry had to learn how to deal with centralized order book in an electronic format well this is the same thing as defy becomes a mainstream progressively a mainstream market infrastructure we all have to learn on how it behaves how does it I can't I can't put a trade an order and then withdraw it when I put it it's executed immediately what is the difference with with the central of the book so we have to learn how it works and for that you need data pricing and valuation charting and Analysis indices and all sorts of free and post trades you know risk management reporting whatsoever and etc etc all these data that you have in traditional Finance you will need indecentralized Finance and that's what a data provider provides with a novelty which is blockchain and the token system so in the world before blockchain you had to go and fetch data the image I take is is is you know Tesco because we're in England Selfridge you you have as an user to list the data you need to go to the shop and fetch it every image has its limits so bear with me that it's just a metaphor today however we the reason why it's transformational is that every information that is relevant or that is needed for the operation of the market infrastructure is on chain so it means that it is accessible and my two images here are yes but is it easily accessible well no if I open for you the door of an Amazon warehouse I'm trying to ask you give me the toothbrush and give me the two space and also I need a towel and some soap you would be quite embarrassed because you're here and you don't know where it is so that's the ambiguity of the new paradigm in which we are it is transparent in the sense that anybody can access it but it's a hell of a work to be able to fetch the right information to know that it's this one and to conceptualize to put it into context together with the other information that make relevant data the beauty of the thing is that with smart contracts and the technology around blockchain data now comes to the user this is why I took the new Amazon you know drone you just specify what kind of data you have and instead of fetching it it comes into directly into your smart contract or your API if you're still if you're still in the traditional world so data providers out there not only in defy to bring the products data products that are absolutely necessary but they also have to invent the infrastructure to bring it efficiently in a modern way in the defy environment so now let's go and see an example okay there was a crash this week in the FIFA industry but let's not forget that it was also a crash in the defy industry called Terra Luna uh which is of course a bit sad um for instance the the power of D5 Market data is here and there is a typo here it should read 13 and not 10 but you remember there was a situation in the Terra lunar ecosystem with the UST being one of the most vastly traded stablecoin across the globe and that crashed in three days three days is a short period of time and is a long period of time it's a very long period of time because of the D5 Market infrastructure every information is on the on the chain if you use what we call our products liquidity pool snapshot you could have observed on the 8th of May something wrong I mean I don't want to enter into details but if you see two flat lines and then suddenly something that happens whereas the two flat lines have been flat for the last year and they're supposed to be flat there's a sign something is happening in the market what is it you should start and come back from lunch and start looking at the market so bring building alerts based on liquidity pool snapshot data is very easy you don't need a PhD to do that it's someone a trainee can do it plugging into the API and and building some alerts what you need to do is to have the intelligence in your alerting system based on your own trading purposes in which Market are you active what kind of products are you Trading and and based on that what is the risks you're addressing what are the risks you're addressing you build your own risk framework the power of defy data is that you can have access to unprecedented amounts of information which in the history of Finance ever since it was invented wasn't available First Alert second alert individual swaps data we've got the products not showing only the position but what's happening suddenly you see very big amounts of selling the market is like this and then suddenly there's a huge amount of selling well what do you do isn't that another sign I mean suddenly if everybody sells something is it a good sign probably not so you start you start caring about your own book you start wondering whether you should take Contour measures and start inquiring what's happening and the third alert sorry is not 10 to the 13. in these protocols tokens are brought in by liquidity provider on the one hand and they are traded by Traders like you and me on the other hand well one of the liquid one of the liquidity provider took away such a massive amount of UST in one go that it just caused the crash so and that you can see here 21 million usually the mass the maximum amount of tokens that were withdrawn were like 5 million it was such a big thing if someone suddenly it I mean if it's extraordinary that someone takes out 5 million and suddenly you see someone taking out 21 you just you just react you call everybody back from lunch and maybe you sell your clothes and whatever and the market didn't crash in 10 minutes because then it's spread into C5 and then it crashed so if you had the products that we have because that's still a pitch in the end if you had the product that we have and if you have made your own homework defining your own objectives your own risk framework and the way you want to monitor it we're not telling you what to do with it we're giving you the power to monitor your own data you would probably have found a way to maybe lose a bit less than the whole book a second example is not a live one the second example is a paper by the bis the bank of international settlements called embedded supervision embedded supervision means that if liquidity develops in this market infrastructure I as a regulator do not have to ask everybody else to give me send me information and we know it's 60 of it is wrong I can go and fetch it by myself obviously they won't be able to fetch information by themselves they need supplier I mean it's it's like you need a cloud provider where you need a data provider but every information needed for the supervision of the market is there therefore the supervision is embedded within the market infrastructure and that's very interesting it is a I would give I would like to give a sort of a positive you know energy here after FTX crash it is a good news it is a virtuous circle because the information is there for everybody to check including the regulator who's there to make sure nobody's gaming the market I want to finish by having a heavy slide which I don't want you to understand I just want you to feel that obviously bringing that data is a business Keiko is a serious big company we've raised 70 million euros in the last 18 months in a series B with Alvin ravia Blackstone and other major investors it's a full institutional grade company we are a sock to label company our indexes a BMR compliance regulation and Europe for those who know that the reason why is that it takes it is an infrastructure to being able to fetch data from decentralized Financial protocols package the right information data market data information and distribute it to the right channels across the industry including Bloomberg Deutsche Bursar and the backbones like ice btz etc etc [Music] so I hope I've convinced you my was an open pitch and I've I think I finished thank you that was amazingly comprehensive and uh you've really built a powerhouse on data it's wonderful in crypto as you rightly said everything is there on chain so from a data's person's perspective it is a data dream isn't it it is sorry it is a data's dream it is all the data is there yes but we are very humble Bloomberg has been existing for ages and actually the crypto data from Bloomberg comes from from GEICO so what we think is that there are new market infrastructure coming some things will be overwhelmed in the way we do it but the businesses will remain the same Traders we'll keep Trading exchanges and these new market infrastructure we keep providing infrastructures data vendors so we just have to adapt and it's true that it's a data-driven world yes absolutely so have you had time to make any analysis on the last 48 hours with FTX or do you have any of your own personal view on what might have happened or might not have happened in that situation yes and I encourage you to read a deep dive that we that we published and it's followed and we have a very good coverage um with the the let's say from a market analysis point of view what I would like to emphasize is that the crypto have been brought around by a No Limit generation which is just great I don't believe you can revolutionize anything without being totally No Limit now the sort of attitude towards regulation and the rejection needs to be refilled in a way that segregation of accounts um credit um knowing who you are making sure nobody's gaming the market this is what is regulation so probably the absence of a framework has played a role I don't say it would have prevented anything yeah but it probably let the thing be much bigger than it could have been yeah I suppose I think the first thing that came to my mind was where was the compliance oversight um you know where was the checks the balances the procedures um at the end of the day although FTX might be run by a young gentleman Sam bankman Frieda it might be a young company with regards to its years but ultimately uh they were a counterparty to so many people and they had also raised quite a lot of external Venture money as well so um I I know Sequoia had invested several several hundred millions into it so I would be interested to know that they have a board seat or that they have supervision but what processes and procedures were put in there which would have been very traditional type processing procedures and measurements to make sure that this type of thing might happen so I'll be interested to see that side of it as well absolutely so I've been a general counsel of a regulated exchange yeah so the the regulation is is twofold the first one is making sure that the market is fit and proper that is sound that no one is trying in game so this is not the market infrastructure itself but the the um the participants in the case of exchanges not defy defy we have to invent another system because it's automatized yes but for exchanges somehow they have to check that as an infrastructure the question is how is the industry willing to have massive amount of money given into custody to to businesses that are not controlled by anyone which is the case in most areas um maybe bananas or fruits and things like but in the financial industry usually they're also always been a dialogue between self-regulation and supervisory Authority regulation in our case we haven't really entered that dialogue yet and I think it's time we should I suppose it's quite difficult because like traditional Finance you will be focused on the financial hubs of the world whether it be New York London or Hong Kong I suppose with crypto and blockchain these businesses these projects these exchanges can be spun up in numerous different jurisdictions and also they're not labor intensive where it's not like you've got a Citibank 100 000 employees on some of these exchanges it can actually be 20 or 30 people so they can be in jurisdictions which for a regulatory perspective might not be as sharp or as mature as some of the financial hubs although these guys are doing the same level of business so jurisdictionally it's quite difficult yes but it's the same now yeah we live in the UK or the Europe or or very highly regulated areas but others are less so it's not the it's not new the fact that you have Global businesses is not a novelty what I think is going to be extremely interesting to observe in the in the coming weeks and and I mean days and weeks and months is how the industry itself reacts because the timing of lawmaker is is longer and is not going to be possible that the regulation captures it because it's not built yet it captures it immediately so the reaction of ourselves as an industry how we react to that is going to be a very interesting uh development to observe oh you know ultimately I think it's it's it's it's it's negative in general and I think we'll see a lot of our traditional Finance guys that we're looking at deploying Capital into the space and it really starts with the you know Regulatory and compliance which will do their due diligence on it you know when they see drawdowns of this magnitude happening this fast and it was funny you mentioned three days you said it wasn't a long period of time but actually it was a long period of time when you saw what happened so quickly in the markets in a you know several hour period I think traditional Finance compliance and Regulatory staff at institutions that are looking at deploying Capital yet again I think this is a hurdle for them because it looks like the market fell apart so quickly so fast with very little stops in there and that's scary because it's hard to get downside protection in situations like this I'm extremely optimistic and I'm not candidly optimistic the reason why is that it shows what needs to be addressed yeah much more in a much more clearer way it's very sad I would have loved not to have lived experienced that but it shows what needs to be addressed the potential of tokens or D5 which even not even talking about D5 but even the token itself has a great potential we always air miles I don't know there are many ways you know that we need tokens yes as an asset D5 is coming with a new infrastructure therefore it's going to it's going is there to stay and Financial professionals they know that it's not built like this yeah in the Futures and option markets which was my area I took 30 years to do closeout netting and and to try and find a proper regulatory so maybe crypto goes faster so it's not going to be 30 years but I'm very optimistic that we find a good balance yes and actually I say this all the time you know it's not necessarily where we're at it's where we've come from and if you look at how complex the market has become in the last 10 years from literally zero to what it is now you guys are a great example of that offering the service that you do on the data side you know we never could have dreamed that five years ago and it's here now and it's operational and it's not just Theory exactly and what we do has to be complemented with Market participants we're in the world of Big Data artificial intelligence high computer heavy load computation so we're never going to come back to a time where there's less data there's always going to be more data the question is once People Like Us bring the data to the users it's only the beginning of the game those users you have to build your own tools and infrastructure to manage the data and to go in the direction you'll set yourself I got it a big round of applause for Philip that was awesome thank you so much