Welcome to our institutional newsletter, Crypto Long & Short. This week:
- Marcin Kazmierczak on risk assessments and how they are central to capital being deployed in the chain
- Andy Baehr says Bitcoin has something to do
- Top headlines institutions should be aware of by Francisco Rodrigues
- “The silver rush becomes hyperliquid” in the Chart of the Week
-Alexandra Levis
Expert insight
Risk Assessments: DeFi’s Maturity Test
-By Marcin Kazmierczak, Co-Founder, RedStone
In DeFi, the most dangerous mistakes are those that accumulate over time, where risks are overlooked despite clearly visible red flags. TerraUSD (UST) didn’t collapse because something suddenly broke. In the moments before failure, capital was still pouring in. From the outside, the system appeared to be working.
The same pattern emerged again in November 2025 when xUSD, a yield-bearing synthetic stablecoin issued by Stream Finance, lost its peg after a loss of $93 million. There was no exploit, no oracle bug, no “unfortunate” trigger. The risk did not appear suddenly. Instead, it accumulated until it could no longer be absorbed.
We should not portray these collapses as black swan events. The risk was present long before the crash. Although DeFi infrastructure can enable the most efficient way to price profit, this nascent market still lacks the right information to do so. The missing data is not about how much a strategy returns, but rather how likely it is to break and what risk-adjusted return of one’s positions is. Risk assessments exist to make this distinction explicit, and they are becoming more and more central to how capital is applied to the chain.
What a DeFi risk assessment actually is and what it isn’t
Traditional credit ratings rely on analyst judgment and infrequent updates. That model has failed before. Iceland retained a sovereign rating at the highest level just months before the country’s financial system collapsed. Many DeFi risk tools repeat this pattern in a new form, offering static reports or overly complex dashboards that describe risk without translating it into actionable signals for investors.
A DeFi risk assessment is designed for a different environment. On-chain risk evolves continuously as liquidity, oracle assumptions and liquidation incentives shift. The largest DeFi risk assessment platform, Credora is updated daily, transforming risk assessment from a periodic snapshot closer to a live data feed that can inform both individual and institutional exposure decisions. The goal is not analysis for its own sake, but standardization. In this way, risk can be compared before the capital is invested.
The core of Credora’s system is probability of significant loss (PSL). PSL measures the annual probability of losing more than 1% of principal due to losses. It is a solvency measure, not a volatility measure. Unlike value-at-risk, which focuses on regular price movements, PSL isolates tail-risk scenarios where collateral does not cover loans. The result is a single rating letter from D to A for assets, DeFi markets and vaults – an interpretable signal that enables risk-adjusted decision-making rather than raw yield hunting.
The Credora rating scale is mapped to TradFi standards and governed by PSL cut-off ranges. Source: Credora Documentation.
The compass for institutional capital injection
The purpose of DeFi risk assessments is to standardize outputs so that risk can be compared and measured by return-to-risk ratios before capital is deployed. Ratings give assigners a common language. Some will remain within A-grade strategies with moderate, more predictable returns. Others will deliberately pursue higher return, higher risk strategies. The aim is not to marginalize risk, but to make it explicit so that individual and institutional investors understand what they are signing up for. If UST and xUSD had received a “C” rating with a 30% probability of significant loss, a large portion of investors would not have put capital there, saving billions of dollars and preventing hundreds of billions of DeFi capital outflows.
Credora measures risk where it actually occurs, across a three-layer stack and utilizes Monte Carlo simulations. The asset layer evaluates collateral quality and default risk for, for example, Coinbase Wrapped Bitcoin (cbBTC). For example, the market layer captures liquidity, liquidation mechanics, volatility and oracle design in the cbBTC / USDC market. The Vault layer stands for aggregation risk, curator behavior and management protection of e.g. The Steakhouse USDC box. Designed to change before losses materialize, these ratings act as early warning signals that make returns comparable through risk-adjusted return analysis and incorporate chain-specific adjustments that traditional credit models do not capture.
Ratings by default is the path to risk-aware DeFi
On protocols like Morpho and Spark, risk assessments are displayed as live, explainable risk profiles right at the time of capital allocation, allowing users to find the most suitable allocation options.
Blue-chip vaults at Morpho with an “A” rating of Credora. Source: Credora X profile.
For risk-aware DeFi to become widespread and the industry to mature, risk assessments must become table games. Wallets like Phantom and FinTech platforms like Revolut will allow their users to filter on-chain strategies by risk level or enforce strategies defined by risk thresholds. AI agents that support financial decisions will leverage assessments to avoid hallucinations and reckless allocation decisions. By 2026, ratings will cease to be optional and will follow the TradFi path to become standards in markets, allowing trillions to float on-chain without exposing billions to unnecessary risks.
This week’s headlines
– Francisco Rodrigues
Bitcoin has failed to maintain its “digital gold” narrative as geopolitical tensions and fears of currency intervention rise. The Ethereum Foundation is already working to prepare the network for a post-quantum world. Meanwhile, regulators are slowly but surely warming up to the crypto space.
Vibe Check
Bit-splaining
– By Andy Baehr, Head of Product and Research, CoinDesk Indices
Bit-splaining
Bitcoin has something to do. So does the rest of the asset class. A meeting in early January failed (nothing kills a mood like tariff talk). Gold and silver rush forth, shining as ever. ETH (whose performance leadership, we maintain, is critical to a broad crypto rally) cannot hold $3,000, despite a line out the door of eager validators and healthy volume. CoinDesk 20 also cannot accommodate 3,000.
For an asset class entering (as we styled it last week) its second year of regulatory and government support, we’d like to see more energy.
For research leaders, commentators and pundits, these markets require accountability, explanations and revised outlooks. Here are a few we found useful.
Mr. Wonderful
Last week, CoinDesk’s Jenn Sanasie and I spoke with Kevin O’Leary. His messages: forget everything beyond BTC and ETH. This could be “talking his book”, pulling back in the face of altcoin underperformance, or just playing it safe. There is arguably more potential alpha in altcoins, and O’Leary claims to be an alpha guy. But it’s hard to support smaller cryptoassets these days as they have so little price support. Mr. Wonderful also redirected listeners to land, commodities, power and infrastructure, mostly accessible only via private vehicles.
Guld’s unpleasant lesson
Greg Cipolaro cuts through the noise on gold’s outperformance against bitcoin and identifies structural differences that matter. Bitcoin remains trapped in “risk asset” behavior, with its rolling 90-day correlation to US stocks hovering around 0.51. Gold benefits from decades of institutional precedent; bitcoin is still building its playbook. There is also a liquidity paradox. Bitcoin’s 24/7 tradability—once celebrated as a feature—makes it the first thing to sell when leverage unwinds.
Noelle Acheson adds another dimension: Gold hedges short-term chaos (tariff threats, geopolitical flare-ups), while bitcoin is better suited to hedge long-term monetary disorder that unfolds over years, not weeks. As long as the markets believe that the current risks are dangerous but not fundamental, gold wins.
The narrative problem
My friend and former colleague Emily Parker formulated the existential question in a tidy LinkedIn post: what is bitcoin’s value proposition now? The “digital gold” branding meets its stress test when actual gold rises. Bitcoin’s 21 million supply cap is real, but the gold scarcity feels more tangible – all the gold ever mined fits in a few swimming pools. Emily identifies a deeper irony: Bitcoin’s recent institutional adoption (ETFs, Wall Street embrace, regulatory acceptance) undercuts its origin story as independent of banks and governments. When your convention depends on middlemen and the current administration, you’ve traded some of your foundational mythology for mainstream credibility. It’s a trade-off, not a triumph.
The crossroads of clarity
And everyone is laser-focused on the Clarity Act, the bolder observers calling its latest stumble an unforced error on the part of the industry. Matt Hougan at Bitwise charts two ways forward. If the Clarity Act passes, markets will price in guaranteed growth of stablecoins and tokenization today. If that fails, crypto enters a “show me” period — three years to prove indispensability to everyday Americans and traditional finance. A tall order.
What is left
We like the “fast money vs. slow money” framework for monitoring crypto’s progress. The fast money, right now, seems to be on the sidelines (if not chasing shiny precious metals), watching Japanese government bonds (JGBs), FAFO/TACO brinksmanship, the Fed and AI. The slow money continues to roll, including recent announcements from ICE/NYSE about tokenization. Next week’s Ondo Summit and of course Consensus HK will unveil many new projects.
As for today’s crypto market, while uncomfortable, it can also be low-risk, with bitcoin’s 30-day volatility in the low 30s and CoinDesk’s 20s in the mid-40s. Wait and see. Wait and see.
Chart of the week
The Silver Rush is coming to Hyperliquid
On January 26, 2026, Hyperliquid’s HIP-3 ecosystem hit a record $1.6 billion. in daily volume, accounting for 22% of the platform’s total perpetual activity. This increase was driven by $930 million in silver trading as the HIP-3 markets become the primary proxy for bets on this year’s more efficient commodity sector. Reflecting this growth, the HYPE token is up over 18% from its weekly lows.
Listen. Read. Clock. Engage.
Note: The views expressed in this column are those of the author and do not necessarily reflect the views of CoinDesk, Inc., CoinDesk Indices, or its owners and affiliates.
