The Wolf Of All Streets - Why S&P Global Is Betting On Crypto | Charles Jansen, Head of DeFi Transformation And Chuck Mounts, Chief DeFi Officer

Episode Date: October 11, 2022

S&P Global is the backbone of the financial system - its famous rating system provides markets with insights into the financial position of many public companies and helps investors and financial institutions make investment decisions.  Now, S&P Global wants to build a similar system for crypto to help institutional investors navigate the new world and eventually drive adoption. I sat down with the 2 people who are building this new business at S&P - Charles Jansen, Head of DeFi Transformation, and Chuck Mounts, Chief DeFi Officer. We discussed why S&P is moving towards crypto and how to overcome the obstacles on the way to crypto adoption. Chuck Mounts: https://www.linkedin.com/in/charles-mounts/ Charles Jansen: https://www.linkedin.com/in/chajansen/ ►► JOIN THE FREE WOLF DEN NEWSLETTER https://www.getrevue.co/profile/TheWolfDen  GET UP TO A $8,000 BONUS IN USDT AND TRADE ALL SPOT PAIRS ON BITGET FOR ZERO FEES! ►► https://thewolfofallstreets.info/bitget   Follow Scott Melker: Twitter: https://twitter.com/scottmelker  Facebook: https://www.facebook.com/wolfofallstreets   Web: https://www.thewolfofallstreets.io  Spotify: https://spoti.fi/30N5FDe  Apple podcast: https://apple.co/3FASB2c  The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

We often talk about institutional adoption in crypto. Well, that requires some of the largest institutional players to come in and create products that are similar to what we have in legacy markets. And there's no company bigger or better to do that than the S&P. Chuck Mounts and Charles Janssen came together. They're unlikely teammates to form the DeFi team at S&P, and they're going to create indexes and ratings just like we have in legacy markets for crypto.

It's absolutely huge, and you don't want to miss their story. I can say personally that the first thing I think of when I hear S&P is cryptocurrency. Obviously not the case, right? So I would say that might actually be the last thing that you would think about so how is the s&p now involved in this space and why right so um s&p global has multiple businesses and two of the leading businesses are s&p global ratings which is the largest rating agency in the world and s&p dow jones indices. So we have already launched several crypto indices in the space. And Charles and I separately had conversations with different parts of our ex-co about how we as an organization need to be paying attention to and getting involved in the movement towards decentralized finance.

And so that led to the creation of our team, the DeFi team. So we sit in a strategy function and we have a remit to help the organization prepare to adapt and create a new generation of products and services that are fit for purpose in decentralized markets. So we're a small team, but we work with stakeholders across the organization

to try to accomplish that goal. I would have loved to have been a fly on the wall at the conversation where you pitched this to the CEO. What did you guys tell him? So they were actually separate conversations and many that culminated in the outcome of like, OK, we got to get involved. And our CEO actually introduced Charles and I to each other. So I come from a markets background. Charles comes from a tech and crypto background. And together, our CEO brought us together to drive this initiative.

You don't just have a crypto background, right? I've heard that you're the most interesting man in the world, like the guy in the Corona commercials doing surgery. Yeah, so it's like I've been following the wind. So I'm living in Argentina right now. I was in China before, in Brazil before, in France originally. I did a few years of medicine. I hated it. So doctors were all either divorced and depressed, thinking of whether I should go on holiday. And I say, maybe I should work in hotel management. I'll just leave on the holidays.

Just do the holiday part and skip the medicine part. It's perfect. So I went for hotel management. I was in hotel management and then in China. And then I just come back to what I really, really liked. The one I was doing on the side, which was computer science. I went to Argentina where it's kind of common to start from scratch, even if you're 24 or 30. And I went for computer science. I started to work at the Sampico Global Market Intelligence. Then there were people internally, so I was automating everything and somebody told me,

what you're doing could be automated. I was like, I'm the one automating everybody. It could be automated with machine learning. So I started diving in machine learning, doing Kaggle competition, etc. I ended up being the head of cognitive automation at SMP Market Intelligence. I had a team of cognitive automation at S&P Market Intelligence, by a team of 60 automation specialists, machine learning engineers, data scientists, etc.

But I was known internally as a crypto guy for a while. And, you know, the type of guy that in 2018, everybody come and say, I told you. But then speaking with part of the Exco, the C-Suite and many people around in 2020 after the DeFi summer There's been a switch right in November, December. Everybody came back was interested wanted to know more It seems this thing is not dead again, right? So like in general crypto and what is DeFi so we had many session explaining everything then we had legacy mini session explaining everything. Then we had legacy chief index officer, which was Chuck, which was also looking at that and moved to roll to look at innovation. So we

were introduced and we start thinking, okay, what can we do in the field? And is there space for S&P? Because as you said, when you think crypto, nobody's really thinking S&P. But all the collapse we had in the last few months is all related to lack of risk management and transparency around risk, etc. So that's a place where there's actually huge demand for that. So that's what we're looking at. Yeah, I'm one of Voyager's top 30 creditors. I can certainly speak to that personally, personally unfortunately and so then what role do you see s&p taking in the space what kind of products are you creating how do we actually

teach people to manage right so i think um we've already launched i would say the first stage of our in the ratings and the assessment business um in the crypto space by integrating components of DeFi and digital assets into our existing ratings. So you can see that with crypto natives like Coinbase and Compound, the ratings we have for them. But you can also see that in non-crypto natives that have exposure to crypto that we also rate. So that could include El Salvador, that could include MicroStrategy, or other companies.

And I think the next stage is to the immediately adaptable is when we look at the financing of real-world assets on DeFi rails or tokenization of real-world assets, some of those structures will be utilizing or the opportunity to utilize securitization structures. And we have a lot of experience in kind of assessing the risk and securitization structures. So that's another kind of, I would say, the next area that we can focus on where we can contribute to the evolution and maturation of the industry by bringing our expertise in assessing the risk and securitizations to this part of the DeFi market. In the long term, though, I think the real opportunity for us is to look at how do we take our historical expertise in credit analysis and off-chain analysis

and combine it with a new set of on-chain data and analytics to create a holistic approach to risk in the DeFi ecosystem that brings together both the systemic risks in the system and the idiosyncratic risks in the system. We have a lot of experience in that in the off-chain world and looking to develop those parameters and that expertise in the DeFi and digital asset world and so that's what we see as a real opportunity for the firm in the longer term to create this new generation of risk assessment products

that will help not only TradFi clients onboard DeFi and crypto into their existing business models, but also further advance the maturation and the move away from over-coll collateralization in the DeFi space. So we think there's a real opportunity and need for that. And we would like, we are striving to be the ones who provide that. You talked about sort of the systemic risk and lack of risk management. And we've seen sort of the collapse of these C5 platforms left and right.

The story that nobody was really talking about is actually how well DeFi performed throughout this crash, right? As you said, they're over collateralized, liquidations happened in an orderly manner, margin. And so yes, we have the hacks and the exploits, but I think that there has been sort of underlying proof now that DeFi is superior to a lot of these other systems. Yeah, but there's a different aspect, right? Like the problem with over collateralization is a lack of capital efficiency.. Yeah, but there's a different aspect, right? Like the problem with overcollateralization is a lack of capital efficiency. So if we really, really want to scale from that, from there and have, you know,

big asset manager and pension fund get in, they probably won't go for something overcollateralized, right? They don't want to put down 10 billion to take your 5 billion loan. Yeah. But, and plus, well, yes. But then there is also the kind of what we like to almost call the new DeFi, or something was called DeFi 2.0.

And you got the Maples, the Centrifuge, the TruFi, the Goldfinch, the Clearpool, and all those others, which are all looking at under-ized and collateralized. Some are taking like ex margin or now called creditor risk assessment, kind of see what is actual risk of this specific pool. And what we're really looking at as a second stage is just to be able to look at on-chain and off-chain. We don't have on-chain capability right now. And be able to have

maybe just again at the strategy level thinking, but there's huge demand for stablecoin risk and then all around governance risk and liquidity pool risk. Then here you definitely need the on-chain aspect to then be able to actually have an overall protocol risk, which then can also be used as a benchmark. That's all the aspect we are looking at, also combining with what we need to actually be able to do that. But something really interesting right now is what all those protocols, which Chuck was mentioning, which are doing securitization in a way which is not that different to what

our existing methodology are kind of looking at normally, except there is a repayment on DeFi rails. Because at the end of the day, the big question is, if you put your money here, what is the risk of not getting it back? Or what is the chance you get it back, right? So you could ask this for, if I put my money on DAI, if I put my money in this specific uncollateralized pool, you don't really have a lot of visibility right now. I don't want to say specific protocol,

but all of them, you put your money there. You don't really fully know. Most is not on-chain. Many are actually lending to lenders. How do you know the real risk that is behind? Well, if you want trillions to get in, you'll need to have this kind of visibility on what is

actually behind. And that's exactly the way it's done in TradFi. You have rating agencies that give you an opinion on risk. And then when there is, for instance, something like what happened with Wintermute. It was a hack. We're not a tech shop. We will not find exploit before that occur or something like that but the big question is okay now that there is this hack of 160 million did the credit risk change and if

there was a possibility for you know people to just look at what s p is saying because the rating was that are you changing it do you have a different outlook it will just transform the overall field if you look at for is a GB deal of maker something to believe in deal there are some other that we're aware of that want to have longer duration and do something similar but longer duration is complicated in defy because you need to defend the peg of die etc now if you start to have a secondary market for this loan, then even protocol like Maker would be able to be a bit more relaxed, knowing that they could sell maybe at a discount,

but depending if, because you need a rating here to kind of have an idea of how risky this specific loan they did. But then it just creates the possibility for a secondary market of this loan, which then enables Maker and some others to just scale. And creates a much more efficient market. Yeah, I think the Wyrmwood is an interesting example because what we've seen, you know, when you look at the events in the beginning part of 2022 with Terra Luna and then 3AC and Celsius, that really exemplifies the combination of idiosyncratic and systemic risks. And so Wintermute is another example where we are well-versed in our traditional business of looking at both credit fundamental risk and operating risk. And so how

do you think about operating risk in a crypto and DeFi context? And so perhaps the smart contract audit is a piece of the operating risk that is unique to DeFi that needs to be integrated appropriately into our approach to risk assessment. So it's not like you're necessarily starting from an entirely new concept, but you're applying it in a way that is different and fit for purpose for this ecosystem. The first few chapters of the book, you definitely need to finish it. I mean, that makes perfect sense and seems like a monumental challenge. I want to focus on something you both mentioned, which is obviously securitizing these assets. I think there's an idea in the crypto space, sort of pie in the sky, that we tokenize everything, right? Tokenize everything, it improves everything. Your house is attached to an NFT, your title, your mortgage, every stock, no more clearing,

right? We just exchange one to one. Is that the end goal? Do you see it as a replacement for the systems? Are you looking to build effectively a parallel financial system for people who maybe don't have access to that? Well, I would say that Charles and I actually agree in the pie in the sky that we think the tokenization of everything is going to happen. But who can predict the exact twists and turns of the pathway to that. But in the meantime, we want to make sure that our organization is positioned to provide the services and products that are needed to shed light on risks in the industry and allow stakeholders to make informed decisions and to help facilitate better price discovery in the ecosystem. So in the long run, we think tokenization of everything will happen.

But in the range from purely centralized to purely decentralized, my personal opinion is that we're still going to end up in some blended space. The maximalists on both sides will... How dare you admit that there's not just pure centralization? That's literally one of my favorite talking points is, and you can't be purely decentralized without starting centralized anyways and moving in that direction. Right. And so what I think we will strive to do is ensure that as the landscape evolves and innovates and matures, making sure that we are keeping pace with it

and evolving our products and services and capabilities alongside it. So if it ends up in kind of the far extreme towards decentralization, we want to be positioned for that. And if it ends up right in the middle of our well-balanced blend between centralized and decentralized, then we want to be positioned for that too. And I would imagine the further down the spectrum it lands, the more of the big companies will be left behind in the institutions that currently exist. I mean, now we are obviously your S&P, we're talking about NASDAQ doing custody, we're talking about Fidelity and Citadel partnering for exchanges, BlackRock. The names are here, right? And you can see who's not, who intends not to get left behind. So what's really interesting to us is in the, since the creation of our team,

you know, four or five months ago, we've been out speaking to stakeholders across the world from all different areas. So, you know, TradFi, CryptoNative, BuySide, SellSide, regulators, policymakers, et cetera, et cetera. And what's been really interesting to us is that there's a wide range of positioning from our TradFi clients, some that are very advanced, I would say a small handful that are kind of very advanced. And then even maybe a smaller handful that have dedicated something kind of in alignment with what we've done, like a very small team to start focusing on it and figuring out kind of how to carry our strategy forward. But then the vast majority is more like, okay, we need to do something with this. Let's

pull together a task force, a working group where everybody still has a full daytime job. But they add on this, you know, on top of it. And I think that's going to change in the next period, whether that's, you know, one quarter, two quarters, four quarters. But I think it's going to start changing pretty quickly as the big players have been investing human and financial capital to build capabilities. And now that we're on the verge, I think, of getting some stablecoin legislation in the US, I think that will prove to be a turning point that, first of all, allows the players that have already invested in their capabilities to start executing and really scale their execution, but will also incentivize and kind of galvanize action for all the other players that are looking at

it but haven't really taken kind of a lot of concrete steps to and they'll just actually be able to deploy and get it past their their risk managers which i think for a lot but what's interesting is you just described sort of three levels of institutional interest with all the people you're meeting with there wasn't the fourth level which was the only one we heard in 2017-18, which is this crap is going to zero. We want nothing to do with it. I was going to say that. We're so far away from 2018, right? 2018, trading desks were closed.

Everybody was going away. And now, if you don't look at the price, it really doesn't look like a bear market. There's a lot of people at Mainnet. All the institutions are investing and doing everything we just mentioned. You don't look at the price, it's not a bear market. Everybody continues to invest and create. There's more and more developers and more and more hiring in big institutions compared to 2018 where everybody was closing shop, except some DeFi

products. Yeah, I would have argued at institutions in in 2018 if you were the guy who dared to walk into a meeting and say the word bitcoin you probably had the risk of being fired and now if you're working there and you don't have an opinion you're probably at the risk of being fired yeah it's it's really interesting like also in my personal life so i've been my spent my career on wall street um and my peer group typically you know if i go back a year and you told them you're looking at crypto that was like it's all a scam that's just like like are you crazy and today now they'll they'll be somewhere to either be staying quiet or saying yeah it's interesting I'm going to start looking

into this so that I can see in my own personal life, like a dramatic change in my peer group from the TradFi peer group just in the last year. I'll take it. I'll take any interest, all hands on deck that we can get. You talked about the idea that we might have some hopefully sensible stablecoin regulation coming down the pipe from the United States. Are you concerned that there will be less sensible regulation in other areas of the market that might stifle what you're building or impact the market negatively? Yeah, so I think I would call it policy formation more broadly because it's going to be a combination of regulatory actions and legislative actions. And of course, whenever you're charting a new course

and creating a new framework, there's always going to be the risk of missteps or what I would characterize really as unintended consequences. And so regulatory formation and legislation formation will be kind of full of pitfalls of unintended consequences. And so when you look at the legislation

that I think may be coming soon on stable coins, it's really targeted fiat-backed, US dollar fiat-backed stable coins. And I suspect... Fully or over-collateralized. Right. And that will be like the starting point. And then as it starts to migrate out into kind of maybe other forms of stable coins or tokenized deposits or looking at DeFi, which could take years to get to, there's going to be a lot of room for kind of legislation or regulation that kind of isn't exactly what is the best for the market. But I do think that as the market matures and as these big

traditional players get more involved, I think that's going to help the policy formation cycle. So I'm hopeful that we can minimize the number of unintended consequences as we go, kind of go through this period in time. And when you look at the like a piece of legislation that's been proposed from Senators Loomis and Gillibrand, you know, that's a pretty wide ranging. And my suspicion is that we're going to get this narrow stablecoin focus in the short term. And then looking at the broader ecosystem will probably get unbundled and broken into kind of more component parts. And I think that'll be good for the industry and for stakeholders, you know, for all stakeholders. I think that piece of proposed legislation was the most encouraging thing that we've seen. Pragmatic, sensible, and obviously, as you said, most of it will probably

never even be addressed, right? But the very idea that that's sitting on everyone's desk, I think is extremely encouraging. Yeah, and it's also, we were joking when we were in Europe that, you know, people think bipartisanship is dead in the US. But here in this space, bipartisanship is really alive. And you have a lot of support. You have detractors and support on both sides of the aisle. And I think that's also a function of the realization of how important this is and how transformational it can be. And the more that policymakers kind of get in tune with what the promise of this is, I think you'll see kind of the story getting more complex and nuanced, which will, I think, lead to better policymaking. I hope so. You were a bank regulator at the Fed recently and sort of

went under the radar. There was a proposal or statement that banks who want to custody crypto should view it as a liability rather than an asset. That blew my mind. You would have to have a cash equivalent in the bank to be able to custody crypto assets. I mean, to me, that would be as damaging as anything. I mean, State Street and BNY Mellon are not going to do that. Well, I think we should expect to see a number of proposals that, you know, upon further inspection, might not be optimal for the totality of the economy and for the ecosystem. Yeah, I don't think they have it. And in policymakers, you think about their challenge, right? They're trying to balance systemic stability with consumer protection

and providing for financial innovation. So that's a tough balance to find. And I think what I've seen in discussions and following the policy landscape is that that last piece of financial innovation is getting more attention. And it's really easy and prudent to focus on consumer protection and systemic stability. But as the importance of financial innovation gets elevated, I think that will also help reducing the potential for unintended consequences in the policy formation. Well, let's live in a fantastic world where we

get all the regulation and sensible policy that we want. What would be the most optimistic, ideal version of what S&P could build within that framework? In 10 years, where do you see the role in what you've built in this market? 10 years is pretty hard because DeFi is just two years old. We all know that's dog years. I mean, in 70 years, where do you see it? But no, the goal is really to bring transparency, right? One of the things we've been asked several times is, oh, but do you think that if you were in the field when Celsius and Voyager and everything happened, would you have helped avoid that? And we're not really saying that, but we would have broad transparency. So then you decide which risk you want to take. And yesterday at the

opening panel of Mainnet, one of the speakers was saying that people were saying, hey, there's 99% yield here. I don't care about the risk. I'm just taking it. So it might not have changed everything, but at least you would have known. I wholeheartedly disagree with that. If someone had said they just offered a $700 million uncollateralized loan to somebody, I think at least 25% to 30% of people would have said, I'm going to take my money out. I don't want to be a part of that. Well, that's the goal, right?

I'm just trying to say we're not pretending that we'll transform everything. Like my opinion on my own, I think it could because that's exactly what he's lacking. Like if you put your money, I'm really interested in the field in general, crypto-native. I have no idea of the risk when I put my money in a specific pool. It's just not something you can assess yourself. You don't have the information, especially for

uncollateralized pool or even CeFi, which was a full black box. And you thought it was a bank? I didn't use them because I'm not... Not you, but your average person. That was the difference here between... Listen, if you invested in ICOs and lost all of your money, at least you were crypto-native. Now we're talking about your average person who deposited into something that they thought was a bank, that they thought was FDIC-insured and lost everything.

And it was all around TikTok, all around YouTube. It was mentioned as something safe. That's why there is a need. And it's interesting because the field is really trying to self-regulate and basically continuously finding solutions. And there are actors within the DeFi space which are looking at risk in general, right? In different ways. You've got Gauntlet in their own way.

You've got Certik is looking, well, not just at the, they're doing some monitoring also. Coinmatrix is looking at risk. Of course, Credorix Margin, the change name. Membrane is kind of in a way doing this now. So it's happening. Will we be part of the mix from this tri-fi angle? Well, that's definitely something we want to,

because the issue, and Spect spectral also I didn't mention, most are looking just on-chain. But again, if we look at all the issues we had, this would not have helped, for instance, with what we had. Or you would have had less people affected because they would have known the risk. But it was on-chain, right? So basically nobody could flag it.

The many were already there. So you need something which is was on-chain, right? So basically nobody could flag it. Many were already there. So you need something which is both on-chain and off-chain, looking not just at risk of liquidation exercise. It's a complex equation, but you need to look at the actual credit risk itself, not just what is the risk of exploit, etc. And right now, nobody is really doing that. Right. So would it be a simple rating system comparable to what you have elsewhere? So we don't know yet. I don't know that it will be a rating.

Rating is something pretty specific, and it may be more akin to like a cyber risk assessment or an ESG risk assessment. So that's to be determined. But as Charles was saying, the goal here is to really shine a light on the risks that exist so investors can make informed decisions on what kind of risks they want to take. And that's so markets can price risk appropriately. And I think that's the role we help play in traditional markets. And I think that's a role that we can help play in DeFi and crypto markets by kind of shining the light on where the risks are, both idiosyncratic and systemic. It will facilitate price discovery and appropriate

pricing for the risks that are there. So I think that'll be hugely beneficial for the ecosystem and also hugely beneficial in getting and unlocking what we believe will be trillions of dollars of TradFi assets into the ecosystem. Yeah, it's my feeling that the pensions and the endowments are all just waiting for an excuse. They just need to be able to do it in a risk managed manner, right? When we spoke with several protocol they are speaking with pension fund, they are speaking with big asset manager and what is being said to them is we need two

things. We need visibility on risk, that's definitely where we can help, and we need regulation. But even when we speak with them and we explain what we're doing, first many are surprised because, oh, you're looking at that field. And they're also saying on the asset management side that if there was something with an actual rating or risk assessment, it would even transform internally the conversation for them on the possibility to do things. Because now you can say, well, there is a third give that we work with that gives that kind of opinion even internally change everything and almost on the defy side too and I was surprised when

several people at maker core units told us that we would bring decentralization in the field from like ZDAO right the decentralization but makes sense because right now who is doing the risk assessment? Well, they got a team doing it and then you got the one asking for money, which is saying, hey, send me money. I'm super safe. Yeah, so a third party in the middle is kind of a way of decentralization. It's not me saying it's... Ironic. Yeah. If we were supposed to eliminate all of the trusted third parties, but you actually need them. And I've heard that sort of narrative repeated multiple times in interviews that I've been doing of late. It really is an

interesting take. And you talked about sort of the self-regulation in the space, but even some of the names that you threw out, I mean, every one of these hacks and exploits that we've seen has been audited by multiple companies. These are audited smart contracts that are still getting hacked and exploited. So even from internally, the best risk assessment we can do they generally have ended up failing. None of these exploits have happened to something that was un-audited. But the question we don't have an answer to is when there is an exploit and I don't think anybody can you know there's a white hat that can help but at the end of the day there is an exploit it will happen

not everybody will be able to find it. Sure. Now, once it happens, the answer we don't have is, how does it change the credit risk from this specific borrower? Right. That's really missing. And this could be calculated, but it's not something that really exists. So that's exactly where we want to help and push the field to maturity and absences. So that's when we're in. So you talk about systemic and idiosyncratic risk and understanding them. It's funny because a lot of people viewed Bitcoin certainly, but the crypto space in general as an asset class that offered idiosyncratic risk to your portfolio. Have you

been surprised at all at how it's been trading in lockstep with equities during this bear market? Yes. I don't think the correlation you've seen with digital assets or crypto or Bitcoin in particular with equities or tech stocks in particular really makes sense to me. I understand why it's happening, but I think in the long term, that correlation is going to break down. It will. It always did. It was uncorrelated, so it's one of those when in a bear market, everything goes to one. And as the Tradify players come in, that may also provide a pathway to an extended period of high correlations. But the fundamental characteristics

and the efficiency and improvement in cost of capital and the improvement that DeFi and crypto assets and digital assets bring to the ecosystem will stand on their own. And so I do fully expect the correlation to break down. I just, it's hard to say when that's going to happen. That's kind of one of those things where you get what you wish for and everybody wanted institutions here, but institutions don't come in to buy Bitcoin to hedge against inflation. They

come in because it's another asset in their portfolio that they can long or short and it starts to trade like everything else. And it's liquid 24-7. Yeah. And it'll also be interesting to see as more TradFi players come into the space. Do they focus on kind of the specific integrating Bitcoin or ETH or other kind of digital assets into their portfolio construction? Or do they actually look at the abilities of financial engineering that the space offers? And I suspect it will probably be one leads to the other, but I think the real opportunity, yes, I think there will be portfolio construction that goes across traditional, tokenized traditional

and crypto native assets. I think that will eventually happen. But I think the real opportunity set in the space is kind of from the market kind of functioning and financial engineering perspective. So we go from 60-40 to 60-35-5 or something like that first, but then they realize that they can actually earn yield in this space in a secure manner.

And that's really the unlock and the exciting part. That's what I think. It's all about yield, right? I mean, at the end of the day, that's what people have gone to crypto for. I guess now you can get 4% on a one-year treasury. And that's where the stacking of Ethereum is making many people reflect on how can the bond market is getting complicated. The 50-40 model since, I think, Bitcoin Miami and every conference we've been at many is being mentioned

it's kind of not really relevant anymore it's going to evolve where is the place of staking here because there is an actual digital asset and then there is something like Ethereum which should be deflationary when there is enough movement there. Deflationary asset that gives a yield, that's really new. Now, well, the risk on that is a totally different question, but we think that the portfolio management, the portfolio configuration will be like resold 100%. I've seen that argument made about the merge and the move to proof of stake countless times.

Now you have effectively a benchmark yield within the crypto space. So everyone else can now say, listen, if Ethereum 7% we're doing, you know, Ethereum plus one to get you to 8%, is that worth the risk? I mean, is that sort of what you would be looking at? Yeah. I think one of the interesting conversations we've had internally is how do you think about the risk-free rate in a crypto context? So in traditional markets, the concept of a risk-free rate and discounting of cash flows and valuations that flow from that are all well understood and documented. But in the case of DeFi and digital assets and crypto, is the risk-free rate kind of the same? Or could there be multiple risk-free rates? And then how does that translate into the valuation within and across the ecosystem?

So that's a really, I don't have an answer to that. That pretty much is the question, right? Is Ethereum now a risk-free rate? No. But it's probably the closest that we've come in stake. It's probably the closest that we've come. And then of course, the argument is, sure, you can get 7% on your ETH, but it's probably the closest that we've come in state. It's probably the closest that we've come. And then of course, the argument is, sure, you can get 7% on your ETH, but what if ETH goes down 70%?

Right. Yeah, but then, well, I live in Argentina right now. So you have a different perspective when you've got 100% inflation and the currency is being devaluated constantly. So it's always, you compare to what, right? So right now in the US, you have a very strong currency. You do have inflation. But there is this concept outside of the US

on what is really the alternative you have compared to the option in TratFi and what is risk-free in some country can vary also. And this is global. This is something like, even from the security of it, if you stack in East and you're in Ukraine and what happened happened,

you can just move somewhere else and you still have your East. Now, maybe you had something seen as risk-free in a bank account. Can you still access it? Is it really risk-free? There's a lot of different angles in a very changing world to look at that. It's a lot easier to talk about this asset class in the United States for institutions who just view it as another asset rather than something that can save your life. I mean, everyone's heard the stories of people crossing the border and being

allowed to keep $50 when they leave. If you have your seed phrase in your mind, obviously, then they can't steal your assets. I think that's huge. You live in Argentina. I've actually had a guest on previously who said that he would basically, when he would get cash, he would take it, convert it to United States dollars, and then put it in the safety deposit box in his bank rather than deposit it into the bank. So clearly there's a real problem in Argentina. It's not him. It's everybody. I'm not speaking about me.

You use the bank as a safety deposit box rather than as a savings account. Most will have it at home because banks have been taking everything from people several times in Argentina and it's not a full guarantee to have, you know, safe in a bank. So there's a crazy amount of cash within like the home of the people just because, well, if you save in pesos this year you already lost half of the value of your money. So everybody that I've seen that I know, the first thing you do at the beginning of the month, you receive your salary. You check how much you need to spend. And all the rest is moving to the gold of the country, which is the dollar.

But now, so there is a full, it's called like a black market for that because you cannot access the dollar directly with the normal exchange. And this black market has been evolving and now they offer also a lot of different stable coin for a fee and people are moving to that. And it's also a way like the, it's a really complex question. Argentina, I love Argentina, but because of many restrictions there's many many people who actually work in also a type of black market so they either get paid before in Uruguay in dollars, they would go in a boat and bring back the money then change it as three times the value on the black market or now they can just do it with crypto and they get paid in crypto. Of course, it's illegal from an Argentinian law standpoint because they're not paying

tax, etc. But on the developers and that kind of thing, it's very common. It looked like it was going to be legal and then the IMF came in, obviously, and said to Argentina, maybe not. But that's a conversation, I guess, for a different podcast. But I think Bitcoiners love the idea that people in countries with hyperinflating economies are going to buy Bitcoin to hedge. But I think you actually just identified the truth, and people don't want to hear it,

is that for most people, stablecoins, which is access to the dollars that you can't get, is actually what they're converting into, and that those stable coins are much easier to transact with. The average people now will have access in Argentina. Actually, it's paradoxical. It's because of all the context, you have a way higher adoption of this technology by a broad range of people just because, well, the place where you would normally go to get your edge against inflation, now also for your crypto. Very few are actually using protocol, but they would use wallet. Yeah, they use their wallet.

Not centralized exchange many times, where you'll just deposit and then you can send, etc. But very few are actually using the yield. But if you think of it like in many of those countries not just argentina you cannot many times get a yield which is safe and above inflation and if you think of a yield in dollar it's going to be very very low but now well you have this stablecoin you got this protocol and you don't need to be in any country to really be able to interact with them. So that's something, again, that is really not seen in a different way from the U.S. But I've seen different podcasts, and I agree with that.

Some countries might lose their currency, but not because of Bitcoin. So many of the rhetoric of Bitcoin are actually true, but might happen with stablecoin. That's my opinion on my own. I hate to admit, but that's become my opinion as well. That's not what I would have thought three or four years ago. So just circling back to S&P, of course, you guys obviously are in the infancy of your team. You said it's only been a few months. If you had to guess, at what point do we start actually seeing ratings and reports coming to fruition that are usable for institutions and the general public? Well, I would say we've already started that with the rating of

Compound Prime and Treasury. And I think we're going to see more ratings coming out from the DeFi and crypto landscape that harness our existing infrastructure around risk assessments. So it could be corporate risk assessment, sovereign risk assessments, structured products risk assessment. And I think you're going to see kind of more of that rolling out in the near term. Kind of building that longer stage risk assessment framework that Charles and I were talking about, it's hard to say kind of what that time frame is going to look like. You never even know what the space is going to look like. Exactly.

Yeah, and there's still a lot of what we are, we've been doing the information gathering, getting connected with kind of on-chain kind of players to start really figuring out what are the needs that crypto-native and non-crypto-native players would need for risk assessment? What are the data points that we would need to create the IP that enables the risk assessment capability? And then how do we go about kind of building that in a go-to-market? So that's a lot of steps still to come. But in shorter term I think you're going to see a continued focus on kind of the harnessing those existing capabilities to come up with ratings that are fit for purpose for debt issuance. You mentioned reports, we have a few reports that were done by the research lab.

Yeah so we also created maybe about a year and a half ago, a research lab in the organization that focuses on digital assets and crypto. So S&P Global Ratings has about 1,500 or so credit analysts. So it's a deep pool of credit expertise. And the research lab pulls from across not only the whole ratings franchise but also across the whole organization to put out thought leadership and undertake studies to help inform our not only ourselves but help inform our clients and kind of broader set of stakeholders on on the ecosystem so yeah you're clearly the people to do it everybody else would have to reinvent the wheel and you guys

have already been doing it so that makes perfect sense, I think we all agree that there's a institutional wall of money just waiting. So if you guys can help us open those floodgates, we really appreciate it. We'll be cheering for everything you guys are doing. Thank you so much. Thank you. Thanks for having us. Let's go. you