EN | Institutional Yield as a Service Bridging TradFi, DeFi and Embedded Earn Products | MERGE

Okay, now we have institutional yield as a service. Bridging TradFi, DeFi, and embedded earning products. So, please welcome Mateus Nunes Nunes, journalist at Livecoins. Good afternoon, everyone. Everyone listening?

Okay. Uh first of all, I want to say thank you to organization of the merge. It's a great honor to meet you be here. My name is Mateus. I am founder of Livecoins.

Livecoins is a Bitcoin and crypto news website. Uh We are We have been producing content since 2017. And for 8 years, what we see in the market is a lot of people searching for what is the uh next big crypto. Uh when Bitcoin goes up and when Bitcoin goes down. So, in the end of day, um investor wants to make money.

They want to buy a crypto today and get rich tomorrow. But, we also have um people that are looking for uh good job channels, yeah? And so, we have DeFi, we have uh TradFi, we have yield. And this uh what we're going to talk going to talk here. Sorry, guys.

This is my first time speaking English in uh in a event, so So, I think the first question here is first of all, uh we have to present yourselves. So, please present and say about you and what is TradFi and yield. It start with Manuel. Well, hello. Thank you for invitation.

Thank you for the introduction. Uh I am Manuel Uh uh the finance. I'm lead uh efforts in sales uh in LatAm for Coinchange. Coinchange is a original Canadian company where we operate globally. We are licensed in different jurisdictions.

Uh we do asset management as a service and yield as a service for FinTechs, neo banks, wallets, and payment companies where they uh usually hold digital assets and they are probably not using it or they don't doing uh don't performing as as much as they want. So, we try to deep dive deep with a treasury team on the finance team and design a product uh that can um let's say man um match the their requirements in terms of yield and saying that they can turn around and pay to their client uh some yield for custody in their assets they have on their platform. So, in in some way we help these companies to monetize the custody and generate a new stream of uh of yield of of uh revenue uh by uh their assets they are custody. Hello, Esteban. Hello, my name is Esteban Iglesias.

I am founder of the Fintex. We provide infrastructure for financial apps, crypto neo banks, um and wallets to plug DeFi yield, um real world assets, and other strategies to their users. So, like just with an API, just with one connection, they can connect to these diversified products that we will probably talk uh now in a very easy way, in a in a way that they can also um monetize and get a share of the yield in a trustless, decentralized, and non-custodial way. Like but our infrastructure allow every like different models. It can be custodial or non-custodial, it doesn't matter.

We just provide infrastructure and we are distribution layer for for these yields. Okay. Hello everybody. I'm Marco. Hey, spearhead the sales and everything efforts for B2C2 here in Brazil.

So I like to joke that I am head of janitorial services all the way to head of strategy and everything in between. So yeah, I've been here building the past 6 months the B2C2 business, which is basically liquidity providing and market making. That is we're ensuring that the end user, wherever they are, B2B or B2C, has access to the best pricing and to the best credit conditions that they can get. So we only work with B2B companies, big companies, asset managers, retail platforms, some retail platforms here in Brazil, some funds here in Brazil. So yeah, if you ever use one of those platforms, there's a good chance that you are buying from B2C2 actually.

It's kind of an invisible job but a very important one to ensure that the markets run smoothly and yeah, a great deal of interface with DeFi as well. We'll get into that. Okay. Yep. Hello everyone.

It's a pleasure to be here. I'm Rodrigo Tendaji. I'm co-founder of Cred the Markets. We are building a credit infrastructure that will enable foreign investors to have access to emerging markets credit opportunities. So we're basically abstracting every complexity that foreign investors face when trying to deploy capital in emerging economies like legal, moving the money, financial infrastructure, effects hygiene, and so forth.

So in the of the day, we are the infrastructure that enables them to have access to this credit credits like in one click. Simple as that and with transparency and security. Very nice. So, um we have a lot of people looking for how to invest in crypto, how to invest in traditional marketing. And we have DeFi, we have uh yield.

Uh what I want to ask is uh what kind of uh DeFi is more looking uh more special today? What people are looking for? Okay, so this one is for me, it seems. Yeah, we only deal with institutional uh clients, so I can say it from a very institutional perspective. Most of our um of our clients are looking into DeFi as a complement to their entry into the crypto world, right?

So, in the United States, which is one of the countries in which we are the most uh present, we uh we have uh strong capabilities there. Uh it is hard to find one of the top 500 funds, macro funds there that does not invest in crypto in some capacity. Which is a different scenario than of Brazil. Like, they're much ahead of the curve, so we are seeing the ETF issuers there. We are seeing the macro hedge funds there.

They are studying yield strategies as a part of their broader uh of their broader crypto strategy. So, some funds here in Brazil, actually we have funds that do crypto arbitrage. For example, USDT to BRL to USD or BTC BRL USD, like triangular arbitrage, a lot of sophisticated players. But, those windows of arbitrage do not open often, for example. So, they park their money on yield strategies to make sure that they have the best possible yield.

And we help them do it with partners, with other people. We do not offer direct uh DeFi infrastructure. But yeah, what we are seeing is here in Brazil, those funds invest in their capital to make the most out of return out of a arbitrage strategy or a professional strategy. And abroad as well, in which it's much more common for a fund to hold Bitcoin or hold the the crypto asset. They want also as well like to have the those strategies to make sure that this crypto asset is not just laying there not producing any returns.

So, yeah, the it it's hard to find a fund out there and here in Brazil actually that does not use DeFi in some capacity. Thank you, Rodrigo. Uh yeah, great question. Uh I think I will like answer in two steps. Like first for institutionals, uh well, we have been seeing like the market evolving uh huge players entering the market, BlackRock tokenizing assets on chain, uh WisdomTree, BlockTower and so forth.

So, I think institutionals are looking for uh well, speaking an overall like opportunities to invest in real-world assets uh that have like a good liquidity. So, D plus zero, D plus one, at most like 30 90 days most uh um short-term investments. And beyond that, they're trying to find assets that can help them to diversify their portfolios. We have been speaking a lot with funds that are investing for instance, that have money to invest in DeFi for instance in liquid tokens and tokenized assets. Uh those guys, they're right now like not content with the kind of yield DeFi can provide to them, especially in the bear market as we're living in.

So, they're looking for diversification opportunities, higher yield opportunities and uh like tokenized assets, especially private credit. That's what we're working, so I'm kind of biased on that. Uh so, they're super interested in this kind of opportunities uh to to to diversify portfolio and they have access to to yield as well. Uh and looking to the retail side, I think uh well, I mean, there's also like uh liquid staking uh uh and the other things around that they're super interesting, but I I think that around 36% of all DeFi revenue goes around uh uh yield farming and savings. So, I think everything related to like uh new possibilities of yield is also super interesting to retail.

And of course, uh yield bearing stablecoins for both sides are also a super interesting uh business right now and probably the fastest growing apart from private credit. Thank you, Rodrigo. I want to add um Yeah. Well, um professionals that work in the ecosystem crypto blockchain ecosystem think that uh crypto asset management or traditional asset management should look like crypto asset management, but I think it's the the other way. I think that uh crypto asset management should or is going to look more like traditional asset management and as um as as Rodrigo said, um today where the yields on DeFi are the bear bear market on DeFi is the returns are getting lower.

We can We can We expected I don't know uh 12% APY 2 years ago, and now we are looking We are seeing 4% APY. The only way to generate better yields, more attractive yields is combining traditional finance strategies, and that's where we come uh we come uh and private credit also comes there to um let's say institutionalize um traditional strategies to the crypto market and there we can talk about delta neutral strategies, traditional option strategies, but build inside the blockchain ecosystem into C5 exchanges. So, I feel like we are in a in a in a point of history where we're going to see a combination for both worlds, DeFi and CeFi, into the same product. And that's where I feel like traditional um digital asset treasury managers should start let's say getting more professional in what in terms of traditional asset management cuz it's not just allocating stable coins into a into a DeFi protocol, it's starting to evaluate how a a traditional trading desk of a bank or a hedge fund works. So, they can so that they can get better performances and they can pay to their client better returns on their assets they are holding.

So, yeah. Yeah, just to say that Yeah, just to sum up um Yeah, we we provide all the infrastructure layer where we can plug all these real world assets and DeFi strategies and we provide we we we add on top of it the possibilities for fund managements to curate those strategies. So, they can rebalance. They can look for better yield on on DeFi opportunities. And also another thing that we see in in the integrations that we have is that a lot of end users, so we are a B2B to C and the end users sometimes they don't really care which specific um uh DeFi strategy the assets are invested in as long as there is like a uh the the the there is a risk management on top.

So, if you have a infrastructure that provides you to do the correct risk management and to do the correct asset allocation, I think that's the best in a way that you will abstract all that DeFi complexity to the end user and the end user just deposits in a high-quality product that it can be DeFi or high-quality real world assets tokens. Thank you. So, here in Brazil, every time we every time we talk about property or making money with crypto, everyone thinks about the risks, right? So, I think everyone is is asking right now, what are the risks of this market for institutional and for for the investors? Okay, so first of all, one thing that has to be evaluated is counterparty risk because those institutions are rarely going to do the transactions directly on blockchain.

They are going to see some layer between them and the direct DeFi, for example. So, they they want to have a counterparty like B2C2, some other market makers, some other guys providing that infrastructure to those kind of institutions, right? So, the moment that their assets leave their vaults, let's say in general, I'm saying fiat vaults and also token vaults, they're running counterparty risk. They're running the risk that the counterparty will fail, that the counterparty something will happen and that can break a bank, that can break an asset manager if they're doing an arbitrage strategy and they're a lot of they're turning their capital at all times, so their capital is stuck there or either stuck for more longer than it should or that you know, like they don't get the capital back. I think this is one of the main concerns, and this is why some financial institution here in Brazil and abroad have decided to go build their own infrastructure, for example, their own custody infrastructure.

And why so why it's important to see like people like Anchorage like out there the bank getting the the licenses to offer custody B2C to into the market. We are fully owned by a Japanese bank, for example, so very solid balance sheet, very solid guarantees behind it. So this is what institutions want to see. I think I don't foresee a world in which those asset managers, those guys go directly trade into some DeFi, some decentralized exchange. I see a world in which they take into consideration very carefully who they are entering business with.

Yep. And on my side, again, I'll I'll try to bring like a take more related to real-world asset tokenization, especially with these credit lines. Um we have been speaking with a lot of investors abroad, and some concerns are raised, and I think we need to evolve some aspects to enable this product to become like wide adopted for institutionals. I think, for instance, one of the first things is transparency, so being able to provide the investors everything related to the underlying assets. It in some way correlates with what we were talking before, like counterparty risk.

So which assets are backing this operation, how safe are them, what's the historic, and so forth. So in credit markets, for instance, we try to create not only credit models, but transparency systems, so the investors can have access to all of this. But there's like two another steps that I think are super important as well, especially in the credit ecosystem. First of all, today a token of like a credit receivable for instance or a real world asset investment is a kind of a proxy to the asset in itself. Like it doesn't have have like directly legal tender to that.

So like the token is not the asset in itself. So that's something we need to evolve. In Brazil we have been seeing experiments with nuclear for instance. They're trying to uh like issue the receivables for instance are tokenized. Uh there's something that we need to advance.

And a third thing I think is related to payment flows. So today most of the payments happen off chain still. So like you move it through banks and payment systems and and other fintechs. Uh but so we need to rely to the traditional financial system. We think once the the world and the market start to revolve around stablecoins and payments so we can provide a better services on that because we can have like on chain force amount on repayments and and and on on the money flow.

So I think it's the three steps that we need to advance at least on my on my side of the table here as a credit tokenization platform. Manuel I'll just add a little comment. Like um institutionals aren't anti-crypto. They're anti-risk. So if they feel that risk uh is as safe as the bank, they will adopt it.

So in these terms, I don't think a CFO wants to put himself into a position where he can't explain to their board or to the auditor or to the regulator why they had a a massive liquidation or they have a smart contract risk. So um there is where our companies uh land and this layer for yield as a service where we do the assessment on security, on technological security, on compliance uh and on the asset management side. So I feel like the future will be non non-custodial non DeFi and non-custodial is is kind of an illusion. Is it always going to be a layer in the middle for somebody to take the risk and to assess the risk in in terms of of asset management. Yeah, totally agree.

I I can just add that the infrastructure that allow you to assess the risk, like I said before, because it's there are so many different layers and so many different products. Like even if you have lending on DeFi, there is a different risk depending on the protocol, depending on which assets you put in that in that pool, depending on who is the market maker as well sometimes of the assets of that pool. So, if you have everything measured and if you have the infrastructure on top that will allow you to act sometimes in real time to certain risk situations, that's good and that that's what we have been building. So, we we have an abstraction, we have an infrastructure and we allow curators to act immediately if something is going on and then we we just provide the tools for for investors to use. Thank you.

So, we have just a few minutes left. I will do the last question starting from this side. How do you guys see the future of DeFi markets and trade five? Will be outside the traditional market, will be inside? How how is this going to be?

Well, I think it's going to be hybrid, but mostly it's going to be on the side of a layer between the asset like the management and the companies, the the institutions. Of course, there are cases like like BlackRock and a with a tokenized fund build that you can use such a collateral in a DeFi market or Societe Generale working with Morpho um I believe that you can the yield must be explained where can where do you get the yield has to be explained for institutionals to be adopted and for that you need a layer in between that as I mentioned before takes the risk do the asset the the the assessment on on on on the asset management and the compliance side so it's going to be hybrid but I feel it's going to be 80% let's say centralized yield as a service and 20% uh going pure DeFi in terms of of of yield generation. Yeah, I I agree completely in terms of institution like institutional adoption I agree I completely agree but I can also that add that probably it would be a lot of retail users that will have a non-custodial um financial activity. So there is a lot there is a big population currently that doesn't have that doesn't even have access to a bank right but they have access to phones. And through phones they can have access to a wallet and through There is a lot of people that don't know how to use DeFi.

Yeah, yeah and if you abstract the complexity enough and if you give them the tools um they they can they can have their first financial product through a non-custodial DeFi or real world asset like tokenized um something and they just want to have something have something to use and even people even people that have access to banks a lot of people live in in jurisdiction in where there is high inflation. So, giving them the possibility to to have a different investment, that's also great. So, probably institutional side, I agree that it would be an hybrid with 80% will be centralized. That's I agree. But, for the retail side, I think that probably we have big portion will be uh non-custodial, decentralized, tokenized, DeFi merged with that.

Perfect. I see DeFi as one more instrument among many others that institutions have to manage their risk and to get yield in some sense, like and to get a return. I won't even call it yield. I would call it return. So, we have tried five strategies.

Like, I'll use BTC as an example. So, we have to hedge all our trades. We are a market maker, so as soon as a client buys something in our platform, we are sold in that in that asset and then we have to hedge it. And you have like dozens of ways of doing this. Some of them are much more related to TradFi, in which a CFO would immediately understand, like futures, options, something like that, or using derivatives to hedge.

You have DeFi, in which like you can immediately unload that that position that you have in a decentralized exchange, or you can park your cash in a decentralized exchange and get some yield. You would get the same effect using an option collar, for example. So, yeah, there are several ways of achieving the same objective. Like, is it be it yield, be it hedging, like, whatever you want. So, DeFi is going to be one of them.

What percentage is it going to be? It depends on how usable it is. It depends on how risky it is in that sense. Like, are you running counterparty risk? Can you explain to to board what you are doing?

Like, uh if a if anything goes wrong, does it make any sense? So, if it's it's going to be 10%, 20%, 30%, I don't know if anybody has this answer, but it's going to be a percentage certainly of institutional allocation in the future. Thank you. Yeah, I mean, I agree with it like mostly what everyone here said before me. It's like it's always the hard part becoming the last to speak, but I think yeah, I mean, whatever makes a boat float, I mean, uh like institutionals, they will definitely uh do with intermediaries.

I like to call it like C5 because like we have like crypto infrastructure but with like a centralized intermediary in between. So, I think definitely uh most of institutionals will go around that. I have been speaking with some more sophisticated crypto funds and they do prefer to like interact directly with DeFi infrastructure and like operating uh with protocols. Uh so, yeah, I mean, totally agree. Like most of them will be in C5 and some of them in DeFi.

And regarding uh retail, I think like there will always be DeFi there for them, but I think most of retail will interact with crypto through players like uh my friend Sebastian there that will uh abstract everything and put in a centralized platform so that we have access to DeFi not even knowing that they're interacting with DeFi. So, that's that's it, but I think it only complements what everyone else already spoken before. Thank you very much. Well, guys, uh thank you for being here uh until now. Uh if you have more questions about TradeFi, DeFi, we can talk to us around here.

We will be around here. And that's it. Thank you very much. Thank you. Thank you.

Thank you. Thank everyone. Thank you.