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Verdict.finance: Repricing Risk for the Next Wave of DeFi · Hardwired by AlphaWire

• 0:00
  SPEAKER_00: So, hello everybody and welcome to another episode of Hardwired.
• 0:04
  SPEAKER_00: Thanks, Charles, for joining us.
• 0:07
  SPEAKER_00: Yep, lovely to be here.
• 0:08
  SPEAKER_01: Thank you very much for the invite, Harry.
• 0:10
  SPEAKER_00: You're very, very welcome.
• 0:11
  SPEAKER_00: Excited to hear a bit about yourself and about your company.
• 0:15
  SPEAKER_00: But I always like to start these off in the same way, which is can you tell me a little bit about yourself, what you do, how you kind of got to where you are?
• 0:22
  SPEAKER_00: The always obvious question is how you got into crypto, but but feel free to take it wherever you want.
• 0:28
  SPEAKER_00: It's an open-ended question.
• 0:30
  SPEAKER_01: Sure, absolutely.
• 0:31
  SPEAKER_01: Um, so my first foray into crypto was building mining machines from scratch in about 2014.
• 0:36
  SPEAKER_01: So building GPUs, um, mining hardware myself uh and getting some ASICs running uh turned my whole flat into a tropical summer house during the winter.
• 0:47
  SPEAKER_01: So you only had to wear shorts, um, which was absolutely lovely in 2014.
• 0:52
  SPEAKER_01: Um, remember Bitcoin at about a hundred bucks.
• 0:55
  SPEAKER_01: Um, from that point, um, I then went and worked and volunteered with Chainlink to do some work pre-COVID, um, which was a heck of a lot of fun.
• 1:05
  SPEAKER_01: Uh, I've worked with a number of uh early neobanks, been a VC researcher looking at early stage projects, angel investor, things like that.
• 1:13
  SPEAKER_01: It's been lots of good fun.
• 1:15
  SPEAKER_01: Um, then I've moved on to looking at how the crypto market um could be utilized for institutions.
• 1:24
  SPEAKER_01: Um, and this culminated in us building about a year ago um a yield optimizer.
• 1:30
  SPEAKER_01: Um, and when building this yield optimizer, we started understanding all the challenges that institutions have when onboarding into DeFi in terms of risk and compliance, um, which then spawned into verdict, which we've been building solidly for the last six months.
• 1:48
  SPEAKER_00: No, very, very exciting story to hear.
• 1:51
  SPEAKER_00: One that you don't necessarily hear too often of kind of crossing the gamut between doing some work, doing some developing and being a VC and investing.
• 1:58
  SPEAKER_00: And I suppose before we we dive into to verdict, I suppose.
• 2:03
  SPEAKER_00: So what like you got into what Bitcoin?
• 2:05
  SPEAKER_00: 2013, did you say?
• 2:06
  SPEAKER_00: 2014, yeah, yeah, yeah.
• 2:08
  SPEAKER_00: Yeah, 2014, sorry.
• 2:09
  SPEAKER_00: I suppose one question I've got is what have you seen kind of like the change that's that's gone on in the industry?
• 2:16
  SPEAKER_00: Because that I I got in in 17, so been through kind of one less cycle than yourself.
• 2:20
  SPEAKER_00: I suppose what's the what's the feeling about this one, and maybe what's the the comparison to how you felt in the last few cycles?
• 2:28
  SPEAKER_00: Like what do you view as different?
• 2:30
  SPEAKER_01: Okay, yeah, sure, that's a great question.
• 2:32
  SPEAKER_01: So the first Bitcoin conference I went to was down in London in around 2014, took a couple of my friends there, and the thing that shocked me um as a person who turned up in shorts and t-shirt was everybody was wearing suits.
• 2:44
  SPEAKER_01: Um, there were early miners there, things like that.
• 2:46
  SPEAKER_01: So it was it was far more hardware related and just one-chain focused.
• 2:51
  SPEAKER_01: And as things had progressed, DeFi kicked off, Ethereum came out, and the people who were attending these conferences changed magnificently.
• 2:59
  SPEAKER_01: So you moved into more of the shorts and t-shirt realm where everyone was nice and relaxed, you know, going to nice venues and things like that.
• 3:06
  SPEAKER_01: But what we're seeing now is it turning full circle and coming right back to the suits.
• 3:12
  SPEAKER_01: So we've got institutions coming back in.
• 3:14
  SPEAKER_01: I've got colleagues who then go to conferences wearing full suits because everybody else is wearing suits as well.
• 3:19
  SPEAKER_01: So we've gone from this is very serious to this is a lot of fun to this is very serious again.
• 3:25
  SPEAKER_01: And I'm I quite like to see that the ch this change in the whole market.
• 3:29
  SPEAKER_01: Um, in terms of uh the changes in the cycles, things have changed significantly, especially since Ethereum has has come out.
• 3:36
  SPEAKER_01: Um, so the last couple of cycles have disappointed me personally because we've seen meme coins, we've seen pump.fun, we've seen uh degeneracy uh accelerate.
• 3:46
  SPEAKER_01: And it was all fun and games when everyone was aping into Andre Cronier's unaudited smart contracts as soon as he'd release them on-chain.
• 3:54
  SPEAKER_01: Um, but it's now gone to a stage where we've got thousands of tokens coming out every single day.
• 3:59
  SPEAKER_01: Nobody understands risks, nobody understands exactly really what they're doing and just wants to stay here for a quick buck.
• 4:04
  SPEAKER_01: So we need to change that because the whole idea behind crypto was that and DeFi and Bitcoin was that we have to onboard billions of users, and that hasn't quite happened yet.
• 4:14
  SPEAKER_01: Um so I think we need to be serious as an industry and then turn this full circle and come around and say, look, everybody wants to come on chain in terms of the institutions.
• 4:22
  SPEAKER_01: We need capital to come on chain so that we can build proper products.
• 4:25
  SPEAKER_01: And if we can be serious about risk and what exactly is the underlying challenges behind each of these protocols and the dependencies involved, then we can actually bring on these institutions and everyone can start making money again rather than having to chase whichever new meme coin has just been released, like toes or whatever.
• 4:43
  SPEAKER_01: So yeah.
• 4:45
  SPEAKER_00: It is it is interesting to kind of look back on the past few years and then kind of contrast that with what it looks like we're going towards now, and this more institutionalization, very regulated, very compliant version of DeFi really, and blockchain as a as a whole.
• 5:03
  SPEAKER_00: Um you picked on an important point there that I want to expand, and then I want to go into why verdict exists and it and it kind of fits around that.
• 5:12
  SPEAKER_00: Is has the has the kind of goalpost changed in terms of the the amount of steps you need to take to be secure and be safe in DeFi and in crypto itself, or is it just that there's a lot more people attacking?
• 5:28
  SPEAKER_00: Or it like I suppose have have the attack vectors changed, or has it always been this risky, I suppose, in lots of areas, but there was just less people exploiting those risks?
• 5:37
  SPEAKER_00: If that makes sense as a question.
• 5:38
  SPEAKER_00: I know it's a little bit of a wordy one.
• 5:40
  SPEAKER_01: No, no, no, no.
• 5:41
  SPEAKER_01: That makes an awful lot of sense.
• 5:42
  SPEAKER_01: Okay, so if we go back to um where we were in about 2014-2018, there were a finite number of developers.
• 5:49
  SPEAKER_01: Uh, they all congregated on various places.
• 5:51
  SPEAKER_01: Um, most people who were involved in Bitcoin at the time were young, well, young-ish, idealistic, really wanted to change the world for the better.
• 5:59
  SPEAKER_01: Um, their hacks were did exist, but they weren't as prevalent.
• 6:03
  SPEAKER_01: Um, but now as there's more people coming into the industry, uh, things are changing significantly.
• 6:09
  SPEAKER_01: Um, so we have more developers, we have more attack vectors, um, we've and but the thing is not everybody is treating security in the same way as more and more people give their eyes to whatever's going on.
• 6:22
  SPEAKER_01: Um so one of the things we did at verdict was actually look back at the last 10 years in terms of hacks that have happened in DeFi.
• 6:30
  SPEAKER_01: Um, our combined market cap for the whole of DeFi, including Bitcoin, I believe, is about 160 billion.
• 6:35
  SPEAKER_01: In fact, I think that's just the DeFi market cap, is about 160 billion.
• 6:39
  SPEAKER_01: We've lost six uh collectively 16 billion over that time in various hacks and um social engineering issues that have occurred.
• 6:48
  SPEAKER_01: And this breaks down into three separate camps.
• 6:51
  SPEAKER_01: So you've got about half of it is down to infrastructure challenges, that's keys, custodians, front ends.
• 6:57
  SPEAKER_01: Uh, only 33% is in relation to smart contract risks, so on-chain logic, things like that.
• 7:03
  SPEAKER_01: And then you've got about 10% is down to governance capture, dependencies, fraud internally, and things like that.
• 7:11
  SPEAKER_01: So while quite a lot of security teams now are looking very heavily at audits, bug bounty programs, things like that, they're not really looking at the ecosystem side, the infrastructure side.
• 7:23
  SPEAKER_01: And we believe that obviously because it represents almost twice as much in terms of an attack vector uh surface.
• 7:30
  SPEAKER_01: We think that that is something that needs to be heavily focused on this cycle, especially if we're it's supposed to increase trust in the industry and take our reputation back from being in the gutter to something that you can actually talk in to people in parties about and people be interested in what you're talking about, rather than them turning their nose up and going, Oh, you work in crypto, do you?
• 7:51
  SPEAKER_01: Um so yeah, I think things have changed significantly.
• 7:54
  SPEAKER_01: And especially with AI coming about and fable and uh open source models that you can run locally or run on your own hardware, um, we're gonna see these attack vectors increase significantly.
• 8:06
  SPEAKER_01: And something I'll just touch on, um we I don't we'll talk much about it, is the post-quantum secure situation.
• 8:12
  SPEAKER_01: So, as everything's built on elliptic curves, uh, that is a bit of a problem for these post-quantum computers in terms of the post-quantum computers.
• 8:20
  SPEAKER_01: Uh, these will be able to take these elliptic curves apart.
• 8:25
  SPEAKER_01: So it means that if we're serious about an industry, everything has to be quantum secure in the next three to five years.
• 8:31
  SPEAKER_01: Um, and that is also the that's gonna be the new attack vector um where we go after this combined with AI.
• 8:39
  SPEAKER_00: Very, very interesting to sort of come to think about what's gonna come next, but I think we'll leave that, leave that for the end.
• 8:45
  SPEAKER_00: Um so without further ado, why why build verdict?
• 8:51
  SPEAKER_00: Verdict.finance, what what's it for?
• 8:53
  SPEAKER_00: In without going like too deep to start with, into the whole picture, just at its most basic level, what what does it aim to solve and what's its solution to that problem?
• 9:05
  SPEAKER_01: Yeah, sure, absolutely.
• 9:06
  SPEAKER_01: So um a bit of a backstory about verdict and what we were building before.
• 9:09
  SPEAKER_01: So we were looking at a yield optimizer um that went across chains tokens and protocols, um, and absolutely wonderful.
• 9:16
  SPEAKER_01: We thought it was the the best tech ever.
• 9:18
  SPEAKER_01: Um, and we went to speak to some institutions who were our target, major ICPs.
• 9:23
  SPEAKER_01: And when we spoke to the risk departments, the head of risk, their compliance departments, they said, look, this product's great.
• 9:30
  SPEAKER_01: You can move us, you can make sure that we get the best yield, we can choose risk tolerances, things like that.
• 9:36
  SPEAKER_01: But how how how is your whole stack classified in terms of risk?
• 9:40
  SPEAKER_01: And we were like, okay, well, we know exactly that our contracts are fine because we've had audits, and they were like, no, no, no.
• 9:46
  SPEAKER_01: You've got protocols, you've got chains, you've got bridges, you've got oracles, you've got um organizations, you've got vaults, and all of these need to have individual risk scores to generally get through uh an extreme due diligence process.
• 10:00
  SPEAKER_01: So if someone's gonna deploy a hundred million into your protocol, like uh are you are you really gonna skimp out on on your your on your risk uh metrics?
• 10:08
  SPEAKER_01: Well, uh a due diligence department won't.
• 10:11
  SPEAKER_01: So while we're speaking to these guys, the second thing they brought up was coverage.
• 10:15
  SPEAKER_01: So our first low risk tranche for our uh yield product was uh yielding about between four and six percent.
• 10:23
  SPEAKER_01: We went and speak to an industry leader uh in the DeFi insurance market, and we said, okay, this is what you know we would like to be doing.
• 10:30
  SPEAKER_01: Can we get coverage on this for our institutional clients?
• 10:33
  SPEAKER_01: They turned around and said, yeah, that's great.
• 10:35
  SPEAKER_01: Um the premiums will be anywhere between four and six percent.
• 10:38
  SPEAKER_01: We took that back to the institutions, and their first puzzling look at me was basically uh they were astounded because they they they understood that if they parked 100 million with us, all of their profit would be going in insurance premiums, in coverage premiums.
• 10:53
  SPEAKER_01: And that that doesn't work for bringing institutions on board.
• 10:56
  SPEAKER_01: They actually need to make money.
• 10:58
  SPEAKER_01: We've got all this extra risk, not just the smart contract risk, all the dependency risks that go into a protocol.
• 11:04
  SPEAKER_01: Um so because of all these risks, it isn't actually seen as an opportune venture for parking capital uh in large volumes.
• 11:13
  SPEAKER_01: So based on that, we parked and put a pin in our yield optimizer.
• 11:17
  SPEAKER_01: We'd already started building out our rating system.
• 11:20
  SPEAKER_01: Um, but what we did was we decided to look at how other premiums were derived, and we said, right, okay, if we're building a rating system, shouldn't the rating system tie into the initial premium?
• 11:32
  SPEAKER_01: So let's say someone comes in and their protocol is rated with all the dependencies underneath them rated at AAA, that would give them a premium of maybe half a percent to a percent.
• 11:42
  SPEAKER_01: We set that initial premium on the market and then the market do the work.
• 11:46
  SPEAKER_01: So what we've built is a system that uses our ratings and creates a coverage market for anybody to underwrite a protocol, including protocols themselves.
• 11:56
  SPEAKER_01: It turns risk into a liquid asset.
• 11:58
  SPEAKER_01: So the the risk that a protocol has, that is now liquid and can be traded.
• 12:05
  SPEAKER_01: So instead of it just being, you know, you go to an underwriter, the underwriter will tell you how much it will cost and and things like that, and you have to comply with loads of things.
• 12:13
  SPEAKER_01: We want to essentially democratize this and decentralize this to allow anybody to come in and underwrite a protocol, anybody to come in and get um uh coverage.
• 12:22
  SPEAKER_01: And the way we've done it is we've built a prediction market essentially from that.
• 12:27
  SPEAKER_01: So when you can come in, you can into our coverage pools, you can get either well, both claim and no claim tokens.
• 12:34
  SPEAKER_01: Um, you can sell one side for the other, you can um provide liquidity in both of these.
• 12:39
  SPEAKER_01: Um and this way you can essentially bet on whether a protocol will get hacked within a certain time period by holding coverage, uh claim or no claim tokens.
• 12:51
  SPEAKER_01: So it's come, we've come from a situation uh where we were building for institutions and now we're building for protocols who are also aiming for institutions because we all know there's a gold rush going on.
• 13:04
  SPEAKER_01: We've got three trillion coming on-chain, um, according to Scott uh Mr.
• 13:08
  SPEAKER_01: Bessent.
• 13:09
  SPEAKER_01: Um, so if that's the case, there are hundreds now of yield optimizers, RWA companies, tokenization platforms, all going for that same amount of capital.
• 13:20
  SPEAKER_01: And as we know from speaking to institutions, the institutions need a certain level of risk management, um, openness in terms of risk, and they need coverage for anything they're going to get into.
• 13:30
  SPEAKER_01: So by doing this, instead of joining the gold rush, we are going to be selling shovels to the gold miners who are going after it.
• 13:37
  SPEAKER_01: And so that's why we've built verdict.
• 13:41
  SPEAKER_00: Very, very interesting.
• 13:42
  SPEAKER_00: And I and I think timely.
• 13:44
  SPEAKER_00: Like with what's going on in the market, I think one of the slightly underserviced areas is this information around risk and due diligence and the ability to have that in a in a in a format and a way where people at companies who are not maybe as exposed to what goes on on chain can have it in a digestible fashion that's been audited, that's been proven, that's been regulated, that's been compliant, all these buzzwords, but allows you to have a true understanding of of what's going on, basically.
• 14:16
  SPEAKER_00: What and what's what's been the feedback so far?
• 14:18
  SPEAKER_00: So taking just removing the coverage market a moment and just going after after the is the ratings going to be a viable product?
• 14:26
  SPEAKER_00: Like what's been the feedback so far?
• 14:27
  SPEAKER_00: What's been the conversations that have gone on?
• 14:29
  SPEAKER_00: Obviously, I know quite a lot.
• 14:31
  SPEAKER_00: I'm I'm doing a bit of work with you good self, but um for those that maybe don't know, what's what's been the kind of the feedback?
• 14:40
  SPEAKER_01: It's been absolutely brilliant, if I'm completely honest.
• 14:43
  SPEAKER_01: Um, so because we built different products to address different concerns, um the rating side, we'll just focus on that first and then we'll go into a couple of our other products.
• 14:54
  SPEAKER_01: The rating side is crucial for anyone who's building a new yield optimizer, anyone who's building a vault or system of customizable vaults or however they're structuring it.
• 15:05
  SPEAKER_01: We've spoken to companies who have literally said that the reason why they couldn't onboard an institution is their risk wasn't mapped out properly, that they didn't have ratings associated with all the tokens that they've got, the chains that they're using, the protocols, the vaults.
• 15:21
  SPEAKER_01: That that that's been an almost a verbatim quote from a number of different protocols who have turned around and said, look, we need this, we need this now.
• 15:30
  SPEAKER_01: Um, so the rating side is definitely needed within DeFi.
• 15:34
  SPEAKER_01: The thing that we're providing that's completely different is our dependency graph.
• 15:37
  SPEAKER_01: So actually mapping out what the dependencies are underneath and how that coalesces into one final composite score and grade.
• 15:45
  SPEAKER_01: In terms of, we've got another product which addresses the the largest uh attack vector, the infrastructure side, um, which we're tur we've termed a pre-launch risk assessment.
• 15:55
  SPEAKER_01: And every single person who's um either been through our beta on this or purchased this has said that this is incredibly valuable.
• 16:03
  SPEAKER_01: As founders spend so much of their time focusing on product, on customers, on building out websites, finding money for audits and things like that.
• 16:13
  SPEAKER_01: They often negate all the massive challenges that go along with it, such as making sure your keys are properly assigned, that you're if you're custodians, that you're doing things appropriately, that your front end's been properly pen tested, that you can essentially understand how everything's governed, how you respond to risks, how you identify risks, how you um ch deal with change management in terms of your team.
• 16:35
  SPEAKER_01: And so what we do, and to go back to your earlier point, is we provide uh once we've been through these uh these services with our customers, they get full PDF printouts essentially, so that they can take this back, run it through an AI if they've got one, work through all the points piece by piece, because we provide remediation steps of how to actually deal with these issues and how to focus on these.
• 16:58
  SPEAKER_01: And further, they can then take this to their investors, they can take this to the anybody who wants to um deploy capital with them and say, look, this is what we've been through.
• 17:09
  SPEAKER_01: We've been independently risk-assessed, we've been independently rated.
• 17:12
  SPEAKER_01: Here is our full uh ratings package, here's our full risk assessment package, you can read it all, it's completely transparent.
• 17:20
  SPEAKER_01: And with that, we are now helping customers actually get through the door and reduce their due diligence time from you know anywhere between six months down to a few months to a few weeks, depending on how much due diligence is actually going on.
• 17:35
  SPEAKER_01: So we're seeing the effects of what we're building already.
• 17:38
  SPEAKER_01: Um, and we've only really been live for what, eight weeks now.
• 17:42
  SPEAKER_01: Um, and we're having inbound, we've got a decent amount of outbound going on, and yeah, we're we're getting a lot of really, really good feedback on what we're doing.
• 17:51
  SPEAKER_01: And everybody says what we're doing is incredibly valuable.
• 17:53
  SPEAKER_01: There'll be some testimonials up on the website in the next couple of days.
• 17:57
  SPEAKER_00: Oh very, very, very good, I suppose.
• 18:00
  SPEAKER_00: Following on from that, then who's it for?
• 18:03
  SPEAKER_00: Is it is it for anybody that's got a live uh the application or protocol?
• 18:07
  SPEAKER_00: Like who are the who's the ideal customer?
• 18:10
  SPEAKER_00: And I suppose following on from that, who who are they then utilizing this data for?
• 18:16
  SPEAKER_00: You you've touched on it a little bit, but maybe just explain it, explain like what they get in that first round of rating, why somebody would want it, maybe use an example just to kind of put the the frame in people's heads.
• 18:29
  SPEAKER_01: Yeah, sure.
• 18:30
  SPEAKER_01: Um, so we're initially targeting our major ICPs, are essentially yield protocols, um, RWA protocols, so that's real-world asset if nobody knows, uh perpetual markets, uh lending protocols, gambling companies who are working in the cross-section of DeFi and gambling, uh, prediction markets, stable anybody issuing stable coins or you know, anything like that, and especially pre-launch protocols.
• 18:56
  SPEAKER_01: So anybody who's you know doing bootstrapped, pre-seed, seed hasn't actually come to market yet.
• 19:02
  SPEAKER_01: What we can do is we can make sure that anybody is ready to go to market.
• 19:08
  SPEAKER_01: They've thought about everything, all I's are dotted, T's across, nothing's being missed out.
• 19:12
  SPEAKER_01: And using these uh documents that we provide, uh, we can actually come together and say, look, we've been over X amount of criteria.
• 19:21
  SPEAKER_01: Um so let's say a protocols get rated.
• 19:23
  SPEAKER_01: I think there's 70 protocol, uh 70 protocol criteria that one needs to hit and qualify for to get your uh rating.
• 19:30
  SPEAKER_01: Um, and then what they get out of the the end of that is a PDF with everything highlighted, all the evidence in there, the um cross-referencing of the evidence, the sourcing of the evidence.
• 19:42
  SPEAKER_01: Um, and with that, that builds together your composite score so that you can get um a physical document to say, look, we've been actually risk-assessed and rated properly.
• 19:53
  SPEAKER_01: Rather than when, if you were to go to one of the larger companies in the space, they can tend to just give you a uh a grade or a composite score, something like that.
• 20:04
  SPEAKER_01: Where and their methodologies can often be opaque, uh, they can often be a complete bat black box, especially when you get to some of the larger traditional rating agencies, um, and to actually get the detail out of them is really, really difficult.
• 20:17
  SPEAKER_01: And so you are what you end up getting is a logo and a score rather than the full history of exactly why it should be rated like that.
• 20:26
  SPEAKER_01: So because we're far more transparent and open with what we're doing, that is actually something that's drawing customers towards us um rather than the the traditional uh ratings agencies.
• 20:38
  SPEAKER_00: No, it it makes a lot of sense and it and it kind of lives up to the uh the slight DeFi future of togetherness and openness and trustlessness that everybody in in proper crypto likes or did like, I suppose.
• 20:51
  SPEAKER_00: Um what what do you sort of see the future of of on-chain finance looking like then?
• 20:57
  SPEAKER_00: Do you do you think that more of these it's a bit of a weak way of saying a a checkbox exercise because it's so much more than that?
• 21:04
  SPEAKER_00: But I suppose is there going to be a list of things like an on-chain rating that uh goes into whether a protocol really can achieve critical mass in the future?
• 21:15
  SPEAKER_00: Like I think this is probably the first in a step um or a staircase of of things that project's gonna need to do.
• 21:22
  SPEAKER_00: I suppose what what does the future of RISC and DeFi look like to you, I suppose?
• 21:28
  SPEAKER_01: Right.
• 21:28
  SPEAKER_01: So, if I'm completely honest, I think what we're gonna see is a version of the slopening that we've seen on uh X and Instagram and things like that.
• 21:37
  SPEAKER_01: So at the moment, there are quite a lot of humans doing things.
• 21:40
  SPEAKER_01: In the future, we're gonna see quite a lot of AI agents doing things.
• 21:44
  SPEAKER_01: Um, and so what I think is we're gonna see is some individual protocols tailored towards allowing humans to work.
• 21:50
  SPEAKER_01: If they've got MCPs, they'll allow agents to come in and utilize them.
• 21:54
  SPEAKER_01: But I honestly think that the future of on chain finance is AI related, and so what we're doing.
• 22:00
  SPEAKER_01: Is uh allowing free access to some of our rating systems.
• 22:03
  SPEAKER_01: Uh, not the full composite uh information that a normal protocol will get to get past due diligence, but when it comes to uh um disseminating our ratings, uh we're allowing AI to come in and do that.
• 22:17
  SPEAKER_01: And the reason we're going to be doing that is the pipe dream of onboarding a billion people into DeFi sort of died with meme coins, is my opinion.
• 22:27
  SPEAKER_01: And we're we're I look we've got a hell of a lot of work to do as an industry to bring back those people to raise confidence.
• 22:35
  SPEAKER_01: But the one thing that will increase is the amount of AI agents that people are utilizing to do this.
• 22:42
  SPEAKER_01: So while four years ago I would have been like incredibly bullish on humans using everything and you know it's all gonna be human-oriented.
• 22:49
  SPEAKER_01: Now my position is that the AI are gonna dominate everything in terms of agents and what they're able to do.
• 22:56
  SPEAKER_01: Um so while we will onboard lots and lots and lots of people to do various things, um, I think there's gonna be some very interesting stuff coming from the AI.
• 23:04
  SPEAKER_01: Further, quite a lot of people have invested and um planted their flag in yield optimizers or protocols, RWA protocols, tokenization protocols that essentially um aren't geared the right way or are too simplistic in the modern AI age for large hedge funds to actually get involved.
• 23:28
  SPEAKER_01: So, one interesting thing I've heard in the last couple of days from a few people is that the hedge funds itself are looking at the the protocols that are on chain right now and they're just building their own because they don't want to inherit any of that risk.
• 23:44
  SPEAKER_01: But when it comes to like family offices and things like that, individuals, high net worth individuals, they will probably be in the cross section of either using um a protocol that that already uh exists right now, or they'll be using AI agents who can access a myriad of protocols from uh basic inputs.
• 24:05
  SPEAKER_01: So I think the the on-chain world is gonna change.
• 24:08
  SPEAKER_01: We are gonna onboard a lot more capital, but it's not gonna be in the way that people have been betting on in the past.
• 24:14
  SPEAKER_01: So it's it's not gonna be the same as as what everybody had hoped.
• 24:19
  SPEAKER_01: Uh that's my opinion, though.
• 24:20
  SPEAKER_01: Uh you know, things change quite a lot in DeFi.
• 24:23
  SPEAKER_00: No, I'm I'm I'm hazarded to agree, to be honest.
• 24:25
  SPEAKER_00: Or hazard, maybe the other word, whatever, whatever that statement is.
• 24:29
  SPEAKER_00: I always butcher those.
• 24:30
  SPEAKER_00: But um But yeah, no, I I kind of agree.
• 24:33
  SPEAKER_00: I think I think people's people's wants for the industry and what the industry actually does are always kind of far apart, especially in crypto.
• 24:41
  SPEAKER_00: Sometimes they get it right, sometimes they get it wrong.
• 24:43
  SPEAKER_00: Like looking at what happened in 21 and sort of 2020, DeFi summer into kind of the NFT madness.
• 24:50
  SPEAKER_00: It was it was euphoric, it was kind of this rose-tinted spectacles view of the future.
• 24:57
  SPEAKER_00: Then we had the last cycle, which was a bit different or very different to the prior one.
• 25:01
  SPEAKER_00: But I understand why, and I think it was probably arguably healthy that some of those things didn't come to pass because it's it it sort of demonstrated what a lot of crypto and DeFi really is there to do, which is to improve financial rails, it's not necessarily for things to just go up a thousand X overnight, although I still wish a few things would.
• 25:23
  SPEAKER_01: Um yeah, we're we're way past the what was the Wall Street protest that happened in 2008, which uh I think initially kicked off Satoshi's uh desire to build something new.
• 25:37
  SPEAKER_01: Um I I I just I feel as if we've lost our way s somewhat uh over the years, but that happens with every movement that that gets other people in with different uh different opinions, and especially as people get rich and leave.
• 25:50
  SPEAKER_01: Like that that's the other thing to consider.
• 25:51
  SPEAKER_01: I I don't think anybody understood that like once people earn like half a million billion, uh, you know, whatever money people need to exit, that that ideological crusade diminishes and waters itself down to a level where more people come in and all they want to do is invest in Pepe and Pepe goes on a moon mission or whatever, however you'd like to linguistically phrase that.
• 26:16
  SPEAKER_01: And that change is echoed in the market, hence all the the launch pads that launch a thousand tokens a day and things like that and bought a down attention.
• 26:27
  SPEAKER_00: Yeah.
• 26:28
  SPEAKER_00: I I looked, I was looking at Robinhood Chain the other day.
• 26:31
  SPEAKER_00: Um I think I think there's been a hundred thousand contracts or more already deployed on Robinhood Chain, and it's been like two weeks, three weeks.
• 26:43
  SPEAKER_01: Not with a barge pole.
• 26:44
  SPEAKER_00: We've I've been playing around.
• 26:46
  SPEAKER_00: I uh I bought some Stonk broker and I liked it.
• 26:50
  SPEAKER_00: I got in early enough.
• 26:52
  SPEAKER_00: More than anything, it was an interesting primitive of doing something totally different.
• 26:56
  SPEAKER_00: Where in that case, but with the integration of tokenized assets on on Robin Hood chain, they were you would buy this NFT, the fees would go into a pool, it's a bit more complicated than this, but the long and short of it, the fees go into a pool, and then it distributes tokenized stocks to you, which I think is a genuinely novel thing.
• 27:15
  SPEAKER_00: But to that point, it demonstrates something that's going to happen, which is more and more protocols, applications, and and investment products buckets, whatever you want to call them, are going to start to include a multitude of assets and a multitude of revenue streams or ways in which yield is paid.
• 27:33
  SPEAKER_00: And therefore, there are going to need to be more complex or just not just audits, but assessments of all of the component parts of those protocols.
• 27:43
  SPEAKER_00: It's only going to get more complex.
• 27:45
  SPEAKER_00: Like you're going to be able to invest in something that might touch 15 different protocols.
• 27:50
  SPEAKER_00: Now, that'll all be proven, they'll all have an audit, but how, like you say, as a hedge fund or a family office, how would you make an estimation on that unless you have intimate knowledge of all 15?
• 28:01
  SPEAKER_00: Like people in DeFi might, like real power users, but the majority of people don't.
• 28:06
  SPEAKER_00: Like most people do not have the time to to do a true risk assessment of what's going on.
• 28:12
  SPEAKER_00: And I think this this area of research and codifying the risk, codifying the way in which things are built and providing an assessment of how secure or not secure that thing is, there's only going to be more of it.
• 28:26
  SPEAKER_00: Um made me think a little bit more about what some of those entities are going to need to feel comfortable to, like you say, deploy a hundred million dollars.
• 28:38
  SPEAKER_00: Because that is not uncommon for a big hedge fund or a big pension fund that's managing a couple of billion to maybe put 10% of its uh assets under management into something would be a lofty investment, but it's not uncommon.
• 28:50
  SPEAKER_00: Not in this day and age anyway.
• 28:52
  SPEAKER_01: The three cardinal things that institutions, that enterprise, the hedge funds, high net worth individuals need compliance, ratings, and insurance.
• 29:06
  SPEAKER_01: The insurance side is wanting in DeFi.
• 29:10
  SPEAKER_01: The compliance side is pretty much taken care of with chainalysis, with hummingbird, with some sub, with all of these different offerings, and there's more coming out every single day.
• 29:21
  SPEAKER_01: Um, and then the rating side needs to be taken into account.
• 29:24
  SPEAKER_01: So whether people can just look at an asset and see a rating next to it and be comfortable with that, or whether they need to see a full report depends on the amount of due diligence that they need to do.
• 29:35
  SPEAKER_01: And that's gonna have to change within DeFi.
• 29:38
  SPEAKER_01: So if I was signing up to Robin Hood and getting a stonks token and it gave me like 15 different stonks, I'd want to know who tokenized it.
• 29:46
  SPEAKER_01: I'd want to know like their security, their liquidity, what backs this token up?
• 29:50
  SPEAKER_01: Is it just thin air?
• 29:51
  SPEAKER_01: What's what seems to be going on?
• 29:53
  SPEAKER_01: Have we got a one-to-one backing going on?
• 29:55
  SPEAKER_01: Is there actual real uh you know, certificates somewhere that are being held based on the stocks that are being issued on-chain?
• 30:01
  SPEAKER_01: So there's all these different things that need to be taken into consideration before you can actually say something's safe.
• 30:07
  SPEAKER_01: And in inverted comments, that is definitely attributable to DeFi, where you've got a state a situation where some things can be safe for a number of years and then all of a sudden it's not safe, maybe because a dependency has been changed, maybe because there's a new uh package that has been utilized, something like that.
• 30:24
  SPEAKER_01: So we need to basically address this as we're moving forward.
• 30:28
  SPEAKER_01: And do you know what it is?
• 30:30
  SPEAKER_01: I I applaud people who are using these new types of uh systems, uh, going out and testing them and uh trying them all out.
• 30:37
  SPEAKER_01: Uh, I think it's only a matter of time before everybody's using something similar where they can make money while they sleep, because that's the that's the dream, really, isn't it?
• 30:45
  SPEAKER_01: Everyone, you know, you don't have to go to work, you can make money while you sleep, and um you just accrue value.
• 30:50
  SPEAKER_01: So we just need to be able to show that everybody can accrue value safely and for the long term, rather than getting rugged on a Thursday morning in the middle of November while no one's paying attention and all of a sudden you've lost your life savings.
• 31:03
  SPEAKER_01: We need to get away from that into a much more respectable industry.
• 31:07
  SPEAKER_00: Yeah, no, I um I uh wholeheartedly agree.
• 31:11
  SPEAKER_00: Um well this has been really fun.
• 31:14
  SPEAKER_00: Thank you for for coming on.
• 31:15
  SPEAKER_00: Before we kind of finish off, um I always give people the opportunity just to shill what they do and what they're doing, or if you have anything that you want to tell anybody or share.
• 31:23
  SPEAKER_00: Um but the floor the floor is yours, so brilliant, wonderful.
• 31:28
  SPEAKER_01: So we're we're actively looking for um customers, we're customer focused rather than user focused, which is the most of DeFi.
• 31:35
  SPEAKER_01: Um so we're not hunting for various user metrics or looking for to launch a token until we need one.
• 31:43
  SPEAKER_01: Um but we've we've got seven products with an eighth product on its way.
• 31:47
  SPEAKER_01: So as we've discussed, we've got rating system, we've got our coverage system, we've got our pre-launch risk assessment.
• 31:52
  SPEAKER_01: We've built our own White Hat scanner, which basically looks at all the contracts involved in all these protocols that we're rating and compares them to all of the um exploits that have happened in protocol logic um over the last 10 years to make sure that there's nothing layering in there that an auditor may have missed.
• 32:09
  SPEAKER_01: Um, we're also in the process now of releasing three new products in the next couple of weeks.
• 32:14
  SPEAKER_01: Uh, one of them is an audit aggregator.
• 32:16
  SPEAKER_01: So we brought in the world's best auditors into one place.
• 32:20
  SPEAKER_01: Um, a protocol would come to us and say, can we get an audit?
• 32:23
  SPEAKER_01: Um and we would send their code base out to all the auditors.
• 32:26
  SPEAKER_01: They'd come back with discounted rates on the audit.
• 32:30
  SPEAKER_01: Um we can't guarantee how much an audit's going to cost because it's all down the line of code and specialities within specialities between all the auditing firms.
• 32:38
  SPEAKER_01: Uh, the second aggregator that we were building is a monitoring aggregator because quite a lot of protocols they don't understand exactly what they should be monitoring and why within their smart contracts.
• 32:50
  SPEAKER_01: And it's basically a behavioral thing.
• 32:51
  SPEAKER_01: So understand how people interact with your contract, whether someone's testing a hack out on your cot on your contract, something like that.
• 32:58
  SPEAKER_01: And so we think that everybody needs to monitor what they're doing once they've launched.
• 33:03
  SPEAKER_01: Um, the the market for this at the moment is all over the place.
• 33:07
  SPEAKER_01: So you've got people who are vibe coding their own monitors all the way up to people like blockade who charge a large amount per year for this service.
• 33:16
  SPEAKER_01: And I think what we're going to see is blockades and the other companies bringing their prices down as other companies bring their prices up until we reach a happy medium.
• 33:25
  SPEAKER_01: And then the last aggregator that we're building is for pen testing.
• 33:29
  SPEAKER_01: It's the most underutilized thing in the whole of DeFi, which has caused, I think the cow swap was one was the last one in the forefront of my mind, where a front end was breached.
• 33:39
  SPEAKER_01: And we need to do a lot more pen testing within the industry.
• 33:42
  SPEAKER_01: And with that, if we coalesce all of our products and services together and a protocol would use us for um finding all of these the securities uh solutions, then we can negate the vast majority of issues that have come before us.
• 33:58
  SPEAKER_01: Now, it doesn't mean we can protect against anything new that comes ahead of us, because obviously new hacks are new hacks, and these are things that we can't, we don't, we can't predict going forward.
• 34:08
  SPEAKER_01: We we can say that there are going to be hacks going forward, but it's all about reducing the chances of falling short and falling for things that have happened before because there have been countless exploits that rely on the same thing: social engineering, you know, re-entrancy attacks, you know, I could go on and on and on.
• 34:25
  SPEAKER_01: And so as an industry, we need to become far more serious about this.
• 34:28
  SPEAKER_01: And as we become far more serious about this, we have to use all of our security tooling to make sure that protocols are safe.
• 34:35
  SPEAKER_01: And so we've designed verdict from the loss backwards, basically, to ensure that nobody has to lose the same way again.
• 34:44
  SPEAKER_01: And that's why we're building what we're building, because we think that we've got a great product.
• 34:49
  SPEAKER_01: We want all of our rated entities to stay this rated in a in a successful way.
• 34:55
  SPEAKER_01: We don't want more losses to be incurred, we don't want our collective reputation as an industry to be tarnished even further.
• 35:04
  SPEAKER_01: And to we want to raise it up.
• 35:06
  SPEAKER_01: So building something like this, which uh hasn't necessarily been done before in the way we're doing it, we think that we can actually bring a new product to market um that is a suite that protocols can use to improve their security posture and on board the next three trillion people or three trillion dollars or the next billion people, whatever their target is.
• 35:29
  SPEAKER_00: No, it's it makes a lot of sense.
• 35:30
  SPEAKER_00: It's gonna be exciting to see.
• 35:32
  SPEAKER_00: I'm for one very excited to see what happens with verdict and and yeah, exciting times ahead.
• 35:38
  SPEAKER_00: Thank you very, very much for your time.
• 35:40
  SPEAKER_00: It's been really interesting hearing a bit about what's going on in your world and what's going on with verdict and and what the future of security and define ratings might look like.
• 35:49
  SPEAKER_00: But this has been Hardwired.
• 35:50
  SPEAKER_00: Thank you very much, Charles, for coming.
• 35:52
  SPEAKER_00: Thank you, Harry.
• 35:53
  SPEAKER_00: It's been a pleasure.
• 35:54
  SPEAKER_00: I really appreciate it.
• 35:55
  SPEAKER_00: Thank you.