Bhavin Vaid: Curation is essential for navigating crypto markets, risk curators ensure pricing efficiency, and transparency builds user trust | On The Brink with Castle Island

Key takeaways

• Curation in crypto markets is essential for guiding users through a complex landscape of unknown assets.
• Risk curators are vital for maintaining market efficiency and ensuring proper pricing in on-chain credit markets.
• Curators in the crypto space are evolving into infrastructure providers, leveraging best-in-class systems.
• Transparency is crucial in the crypto market to build trust among participants.
• Lessons from past failures in DeFi will shape the future of investment products.
• The composability of risk in DeFi can lead to cascading liquidations from a single asset’s depegging.
• Decentralized platforms must evolve to protect users from losing funds due to layered risks.
• Curators in decentralized applications build trust and streamline processes, attracting value like traditional businesses.
• Ethereum and Solana are expected to continue dominating as leading blockchain platforms.
• The integration of CeFi and DeFi protocols is crucial for future financial products’ success.
• User ownership and trust increasingly depend on curation by established platforms.
• Accurate real-time tracking of net asset value (NAV) is critical for both crypto and traditional finance.
• The market is hungry for high-quality real-world assets to come on-chain.
• The on-chain credit market is expected to expand significantly with new developments like morpho v2.

Guest intro

Bhavin Vaid is co-founder of Birch Hill, a firm focused on risk curation for tokenized assets and DeFi markets. Previously, he served as a Principal at 1RT Fund with a focus on the digital asset ecosystem.

The emergence of curation in crypto markets

• Curation emerged to help users navigate a landscape filled with unknown assets. “The natural need out of that was curation with someone who’s going to pick okay what should users be seeing what stuff is safe or at least what can you find out about” – Bhavin Vaid
• Risk curators ensure market efficiency and appropriate pricing in on-chain credit markets. “The job of a risk curator traditionally is to be done a lot of that’s happened around permissionless collateral… try to keep in the efficiency within the market and that liquidity is getting matched efficiently.” – Bhavin Vaid
• Curators are evolving to become infrastructure providers, leveraging best-in-class systems. “I think a lot of curators today also cross over into being infrastructure providers… we’re generally leveraging who we think are best in class.” – Bhavin Vaid
• The crypto market has suffered from a lack of transparency, leading to distrust. “What a lot of the DeFi market got tired at one point was feeling like you didn’t necessarily know what you were trading and how the markets were set up.” – Bhavin Vaid
• Past failures in DeFi will shape future investment products. “Seeing some of the lessons that we learned from back then… echoes of what happened years prior around the terra luna blow up around the ftx blow up.” – Bhavin Vaid
• The composability of risk can lead to cascading liquidations. “What we hadn’t thought about enough was how composable this risk is and how really one asset one depegging of an oracle could really trigger this cascade liquidation.” – Bhavin Vaid
• Decentralized platforms must evolve to protect users from losing funds. “These decentralized platforms have to evolve to protect their users in some way… you can’t just have users who are losing all their money.” – Bhavin Vaid
• Curators in decentralized applications attract value by building trust and streamlining processes. “I think curators are attracting value in the same way that traditional businesses are able to win revenue and win customers and that is curation is a trust game.” – Bhavin Vaid

The role of infrastructure and transparency in DeFi

• Curators in the crypto space are evolving into infrastructure providers. “I think a lot of curators today also cross over into being infrastructure providers… we’re generally leveraging who we think are best in class.” – Bhavin Vaid
• Transparency is crucial in the crypto market to build trust among participants. “What a lot of the DeFi market got tired at one point was feeling like you didn’t necessarily know what you were trading and how the markets were set up.” – Bhavin Vaid
• The lessons learned from past failures in DeFi will shape future investment products. “Seeing some of the lessons that we learned from back then… echoes of what happened years prior around the terra luna blow up around the ftx blow up.” – Bhavin Vaid
• The composability of risk in DeFi can lead to cascading liquidations. “What we hadn’t thought about enough was how composable this risk is and how really one asset one depegging of an oracle could really trigger this cascade liquidation.” – Bhavin Vaid
• Decentralized platforms must evolve to protect users from losing funds. “These decentralized platforms have to evolve to protect their users in some way… you can’t just have users who are losing all their money.” – Bhavin Vaid
• Curators in decentralized applications attract value by building trust and streamlining processes. “I think curators are attracting value in the same way that traditional businesses are able to win revenue and win customers and that is curation is a trust game.” – Bhavin Vaid
• Ethereum and Solana are expected to continue dominating as leading blockchain platforms. “I think we’ve now converged upon ethereum and solana have really separated themselves from the pack amongst the base layers for block space with block space becoming a commodity.” – Bhavin Vaid
• The integration of CeFi and DeFi protocols is crucial for future financial products’ success. “I like to think about morpho as a sample… it’s really this blending of the cefi and defi native protocols.” – Bhavin Vaid

Navigating user trust and platform evolution

• User ownership and trust increasingly depend on curation by established platforms. “I don’t think you can think about a user as solely a solana user anymore or solely an ethereum user anymore they really are everywhere wherever the product they’re looking for is… it’ll be someone like you guys or coinbase who’s doing the curation work and users will say oh I trust birch hill or I trust coinbase because they’re selecting the reputable morph of opportunities for me.” – Bhavin Vaid
• Lending markets may struggle to balance permissionless access with accountability. “I think the challenge they might face though is to try and continue to be permissionless they’ll struggle to simultaneously establish accountability with end users.” – Bhavin Vaid
• Protocols may need to choose between being a front end or infrastructure provider. “As these protocols have acted as both front ends as well as infrastructure at massive scale… it seems like morpho is really choosing that infrastructure scale.” – Bhavin Vaid
• Assessing counterparty risk involves evaluating operating history and leveraging relationships. “When it comes to a new player I think for us we’re assessing operating history existing partner stack and really working with our third party partners to help us assess risk.” – Bhavin Vaid
• Many hacks and exploits in DeFi are due to phishing rather than smart contract vulnerabilities. “A lot of the hacks and exploits we’ve seen in the space have been in a lot of cases phishing based and may not even be an underlying smart contract vulnerability.” – Bhavin Vaid
• Accurate real-time tracking of net asset value (NAV) is crucial for both crypto and traditional finance. “Having nav be accurate updated real time on chain is something that we think can be extremely beneficial to not just digital assets but also real world assets.” – Bhavin Vaid
• Misreporting of net asset value is a pervasive issue across all financial industries. “NAV being misreported is not a problem only in crypto it happens something in every single financial industry.” – Bhavin Vaid
• There are two primary ways that entities in the DeFi space generate revenue. “I would say there’s two ways people are making money… one case it’s these long term consulting arrangements… the other way is strictly asset management performance fees.” – Bhavin Vaid

The future of asset management and credit markets

• Traditional asset managers are expected to transition to on-chain operations. “I expect a lot of these traditional asset managers to come on chain ideally I’d like to hope that they’re going to need the help of someone like a birchhill to really do this in a native way.” – Bhavin Vaid
• Consulting is essential for building relationships with clients in the DeFi space. “We think about consulting as the way to keep the lights on for the business but really it’s to develop that relationship with that client.” – Bhavin Vaid
• The market is hungry for high-quality real-world assets to come on-chain. “I think the market is starving for high quality real world assets to come on chain; there’s a lot of capital chasing few.” – Bhavin Vaid
• The on-chain credit market is expected to expand significantly with new developments like morpho v2. “That is something that I think is still being yet to develop on chain that is finally with morpho v2 coming out with more fixed rate markets fixed duration customizable on the interest rate model you’re going to see an unlock of these new types of opportunities.” – Bhavin Vaid
• Bitcoin can be used as collateral for borrowing in various fiat currencies. “One of the fundamental trades is you can borrow bitcoin or borrow against your bitcoin and with the other asset being us dollars… you can pretty much at any point put on a long bitcoin short dollar trade or a long dollar short bitcoin trade.” – Bhavin Vaid
• There is a missed opportunity in the lack of fiat currencies available on-chain at scale. “The area that I’m probably just sad hasn’t come to exist is more fiat currencies at scale on chain… it lets you hedge the currency or country like where you live your life.” – Bhavin Vaid
• The integration of bitcoin as a recognized asset for creditworthiness will grow. “You see home mortgage providers now beginning to look at things like bitcoin and offer value and credit against that for your overall net worth and assets.” – Bhavin Vaid
• Asset issuers should focus on efficiency and avoid approaches that exploit retail investors. “If that is the approach of how you want to issue assets I don’t think you’re gonna have a meaningful longevity in this space.” – Bhavin Vaid

Transitioning finance to stablecoins and on-chain execution

• The transition of finance to stablecoins is influenced by competition between banks and private credit firms. “I look at the incentive structure sometimes and I think a reason people don’t talk about why that could very well happen quickly is because it’s a bit of a battle of the banks versus the private credit firms and the other major institutions.” – Bhavin Vaid
• Private credit firms have a strong incentive to transition to stablecoins due to capital arbitrage. “It’s even more meaningful for those middle market private credit firms where they can actually achieve a meaningful cost of capital difference that actually is an added incentive for them to come on chain.” – Bhavin Vaid
• Successful on-chain execution requires integration with compliance functions and third-party services. “How do you execute this on chain but how do you report for this what are the compliance functions you need on chain what are the third parties you need to be integrated with inside your operating stack to make this actually work seamlessly.” – Bhavin Vaid
• The emergence of digital brokerage models parallels the current disruption in traditional finance by crypto firms. “It’s a bit like when the digital brokerage model emerged i think the traditional brokers were excited about it because they could go tap a new audience but at the same time if you wanna disrupt what you have.” – Bhavin Vaid