This week Samantha Yap and guest, Ambre Soubiran, take a behind-the-scenes look at the data that makes financial transactions possible. Soubiran is a mathematician who worked at the highest levels of traditional finance until she caught the DeFi bug. She then proceeded to become the CEO of crypto data company, Kaiko, and turned it into a key player in the digital asset market industry.
Data may not seem glamorous but it is a vital part of the money story. In any exchange, the value of the assets being traded needs to be known and agreed upon by both parties, whether it’s two currencies being traded or a second-hand car being sold in exchange for lots of candy. This requires data.
From TradFi to DeFi
Soubiran was first introduced to Bitcoin in 2012 while reading a math blog that included Bitcoin’s white paper. She was interested in the fact that for the first time ever there was this unit of account that was internet native, and that enabled a form of digital scarcity. It was the first time that you had something that was a digitally native asset that you could transfer to someone else while just relying on the power of the network and internet. Then Ethereum came along and Soubrian saw Ethereum as the real revolution in terms of what it meant for her own industry, which was Capital Markets.
Soubiran believes that blockchain is an incredible underlying technology for financial services and the general financial industry to base its operations on. Blockchain is a technology and that technology requires crypto. Crypto is the unit of account that incentivizes a network to maintain a ledger to process transactions, to process code. The crypto network and blockchain are intrinsically intertwined. However, blockchain is the technology that enables, in the context of finance, the execution of financial contracts in a way that is streamlined. Soubiran reflects that she got slightly frustrated with the capital markets industry having decades of iterating on financial engineering and improving and making processes more smooth. But still, all that has been done is digitizing the old finance, rather than reinventing the workflow and the processes.
Still today, to execute a relatively simple call option agreement between a bank and a client, TradFi has to rely on the whole cycle of front to middle to back office, settlement agencies, clearing date agencies, etc. This can be executed on-chain with the entire value chain kind of being disintermediated while bringing trust, security, and auditability. Soubiran was driven by the conviction that blockchain will serve as an underlying technology and underlying IT system on which industries could be able to function and run code. She concludes by saying, “I was driven by the one fundamental conviction that blockchain would be a transformative technology. And second, that two critical pieces for that to happen are going to be quality code and quality data. And that’s how I ended up running Kaiko”. Code is contract and almost everything we do in life is contracting with one another.
Is the current crisis the same as before?
Yap and Soubiran discuss the parallels between the crisis’ of MtGox and FTX. Much like narratives circulating in 2012 around Bitcoin, there are questions again about ethics and morals in the crypto space. However, we are also seeing more than ever that blockchain is supposed to be about transparency and decentralization, and not about building centralized giants on top of blockchain. When things go wrong with blockchain it is because we attempt to centralize value, power, and information in one place. Even though the FTX crisis does not put the general broader crypto ecosystem in a great light, it also shows why blockchain is actually so important. There are incredible and reputable centralized exchanges doing amazing things, but regulation becomes important. You cannot be centralized and unregulated. FTX proves the points and the importance of transparency and blockchain-based systems.
Evolution of the market for data.
Market sentiment from institutional players has evolved over the past couple of years. Today, there is not a single leading financial institution that does not have a digital asset team. What is more interesting is that financial institutions were pushed by their clients to look at crypto because crypto was an asset class and the asset class was growing with investment opportunities. Initially, Soubarin reflects that institutions took a qualitative approach using historical data to try to understand what type of asset crypto was. Now we’re moving away from the pure crypto thesis and more towards a blockchain tech thesis. The new approach is questioning how can that technology serve us as an industry? How can we use blockchain? It’s becoming less about the crypto asset class and more about how can blockchain serve us which is really exciting.
The importance of good code in crypto is matched only by the importance of good data. Both are vital if DeFi is going to succeed in its quest to become truly decentralised, transparent and credible.
Next time we’re going to pick up the conversation and hear Ambre talk about how DeFi needs to go back to basics if it is truly going to overthrow TradFi.
Follow Ambre Soubiran on Twitter here
Follow Kaiko on Twitter here