Welcome to our institutional newsletter, Crypto Long & Short. This week:

• Marcin Kazmierczak on risk ratings and how they are central to capital being deployed on-chain
• Andy Baehr says Bitcoin has some 'splaining to do
• Top headlines institutions should pay attention to by Francisco Rodrigues
• “The silver rush comes to hyperliquid” in Chart of the Week

-Alexandra Levis

Expert Insights

Risk ratings: DeFi’s maturity test

-By Marcin Kazmierczak, co-founder, RedStone

In DeFi the most dangerous failures are those that accumulate over time, with risks being overlooked despite clearly visible red flags. TerraUSD (UST) did not collapse because something suddenly broke. In the moments before failure, capital was still flowing in. From the outside, the system appeared to be working.

The same pattern resurfaced in November 2025, when xUSD, a yield-bearing synthetic stablecoin issued by Stream Finance, lost its peg after a $93 million loss. There was no exploit, no oracle failure, no “unlucky” trigger. Risk did not surface suddenly. Instead, it accumulated until it could no longer be absorbed.

We shouldn’t frame these collapses as black swan events. The risk was present long before the crash. While DeFi infrastructure can enable the most efficient way to price yield, 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 the risk-adjusted return of one’s positions is. Risk ratings exist to make that distinction explicit, and they are becoming increasingly central to how capital is deployed on-chain.

What a DeFi risk rating actually is, and what it is not

Traditional credit ratings rely on analyst judgment and infrequent updates. That model has failed before. Iceland retained a top-tier sovereign rating just months before its financial system collapsed. Many DeFi risk tools repeat that pattern in a new form, offering static reports or overly complex dashboards that describe risk without translating it into decision-ready signals for investors.

A DeFi risk rating is designed for a different environment. On-chain risk evolves continuously as liquidity, oracle assumptions and liquidation incentives shift. The biggest DeFi risk ratings platform, Credora, refreshes daily, turning risk assessment from a periodic snapshot closer into a live data feed that can inform both individual and institutional exposure decisions. The goal is not analysis for its own sake, but standardization. This way, risk can be compared before capital is deployed.

At the core of Credora’s system is the probability of significant loss (PSL). PSL measures the annualized probability of losing more than 1% of principal to bad debt. It is a solvency metric, not a volatility metric. Unlike value-at-risk, which focuses on regular price movements, PSL isolates tail-risk scenarios where collateral fails to cover loans. The result is a single ratings letter from D to A for assets, DeFi markets and vaults — an interpretable signal that enables risk-adjusted decision-making rather than raw yield chasing.

Credora rating scale is mapped to TradFi standards and guided by PSL cutoff intervals. Source: Credora Documentation.

The compass for institutional capital inflow

The purpose of DeFi risk ratings is to standardize outputs so risk can be compared and measured by yield-to-risk ratio before capital is deployed. Ratings give allocators a common language. Some will remain within A-grade strategies with moderate, more predictable returns. Others will knowingly pursue higher-yield, higher-risk strategies. The objective is not to marginalize risk, but to make it explicit so individual and institutional investors understand what they are signing up for. If UST and xUSD had received a “C” rating with 30% probability of significant loss, a large chunk of investors would not have deployed capital there, saving billions of dollars and preventing hundreds of billions of DeFi capital outflows.

Credora measures risk where it actually emerges, across a three-layer stack and leveraging Monte Carlo simulations. The asset layer evaluates collateral quality and default risk of, for example, Coinbase Wrapped Bitcoin (cbBTC). The market layer captures liquidity, liquidation mechanics, volatility and oracle design of the cbBTC / USDC market for instance. The vault layer accounts for aggregation risk, curator behavior and governance protections of, e.g., the Steakhouse USDC vault. Designed to change before losses materialize, these ratings function as early-warning signals that make yield comparable through risk-adjusted return analysis, and incorporate on-chain-specific adjustments that traditional credit models do not capture.

Ratings as default is the path towards risk-aware DeFi

On protocols like Morpho and Spark, risk ratings surface as live, explainable risk profiles directly at the point of capital allocation, allowing users to find the most suitable allocation options.

Blue-chip vaults on Morpho with an “A” Rating by Credora. Source: Credora X profile.

For risk-aware DeFi to become widespread and the industry to mature, risk ratings have to become table stakes. Wallets like Phantom and FinTech platforms like Revolut will allow their users to filter on-chain strategies by risk grade or enforce strategies defined by risk thresholds. AI agents supporting financial decisions will leverage ratings to avoid hallucination and reckless allocation decisions. In 2026, ratings will stop being optional and will follow the TradFi path of becoming defaults on markets, allowing trillions to flow on-chain, without exposing billions to unnecessary risks.

Headlines of the Week

- Francisco Rodrigues

Bitcoin has been failing to maintain its “digital gold” narrative as geopolitical tensions and FX intervention fears rise. The Ethereum Foundation is already working on preparing the network for a post-quantum world. Meanwhile, regulators are slowly but surely warming up to the crypto space.

• Here’s why bitcoin is failing its role as a 'safe haven' versus gold: geopolitical tensions have seen bitcoin lose value while gold is regularly clearing new all-time highs. That is because bitcoin behaves more like an ATM during uncertain times due to its always-on trading and deep liquidity.
• Ethereum Foundation makes post-quantum security a top priority as new team forms: The Ethereum Foundation is heightening post-quantum security with a new, dedicated team led by Thomas Coratger.
• Japan ETFs seen as likely to trade by 2028 as SBI, Nomura ready products: The country’s Financial Services Agency is planning on allowing cryptocurrency exchange-traded funds and products in 2028.
• SEC dismisses lawsuit against Winklevoss-backed Gemini over Earn product: The U.S. Securities and Exchange Commission (SEC) has dropped its lawsuit against the Winklevoss-backed exchange Gemini as investors received 100% of their assets back.
• Stablecoins moved $35 trillion last year but only 1% of it was for 'real world' payments: A study from McKinsey and Artemis Analytics found that roughly $390 billion were genuine stablecoin payments. These figures represent just a fraction of the more than $2 quadrillion global payments market.

Vibe Check

Bit-splaining

- By Andy Baehr, Head of Product and Research, CoinDesk Indices

Bit-splaining

Bitcoin has some 'splaining to do. So does the rest of the asset class. An early January rally failed (nothing kills a vibe like tariff talk). Gold and silver are speeding ahead, shiny as ever. ETH (whose performance leadership, we maintain, is essential for a broad crypto rally) can’t hold $3,000, despite a line out the door for eager validators and healthy volumes. CoinDesk 20 can’t hold 3,000 either.

For an asset class entering (as we styled it last week) its sophomore year with regulatory and government support, we would like to see more energy.

For the research heads, commentators, and pundits, these markets call for accountability, explanations, and revised outlooks. Here are a couple we found useful.

Mr. Wonderful

Last week, CoinDesk’s Jenn Sanasie and I spoke with Kevin O’Leary. His messages: forget about anything beyond BTC and ETH. This may be “talking his book,” retreating in the face of altcoin underperformance, or just playing it safe. There is, undoubtedly, more potential alpha in altcoins and O’Leary claims to be an alpha guy. But it’s hard to support smaller crypto assets these days, since they have such little price support. Mr. Wonderful also re-directed listeners to land, commodities, power and infrastructure, mostly only available through private vehicles.

Gold’s uncomfortable lesson

Greg Cipolaro cuts through the noise on gold’s outperformance vs. bitcoin, identifying structural differences that matter. Bitcoin remains trapped in "risk asset" behavior, with its rolling 90-day correlation to U.S. equities sitting around 0.51. Gold benefits from decades of institutional precedent; bitcoin is still building its playbook. There's also a liquidity paradox. Bitcoin's 24/7 tradability — once celebrated as a feature — makes it the first thing sold when leverage unwinds.

Noelle Acheson adds another dimension: gold hedges near-term chaos (tariff threats, geopolitical flare-ups), while bitcoin is better suited to hedging long-run monetary disorder that unfolds over years, not weeks. As long as markets believe current risks are dangerous but not foundational, gold wins.

The narrative problem

My friend and former colleague Emily Parker framed 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 surges. Bitcoin's 21 million supply cap is real, but gold's 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 rally depends on intermediaries and the current administration, you've traded some of your founding mythology for mainstream credibility. That's a trade-off, not a triumph.

Clarity's crossroads

And everyone is laser-focused on the Clarity Act, the bolder observers calling its recent stumble an unforced error on the industry’s part. Matt Hougan at Bitwise maps two paths forward. If the Clarity Act passes, markets will price in guaranteed growth of stablecoins and tokenization today. If it fails, crypto enters a "show me" period — three years to prove indispensability to everyday Americans and traditional finance. A tall order.

What Remains

We like the “fast money vs. slow money” framework for monitoring crypto’s progress. The fast money, right now, appears to be on the sidelines (if it’s not chasing shiny precious metals), watching Japanese Government Bonds (JGBs), FAFO/TACO brinksmanship, the Fed, and AI. The slow money keeps rolling, including recent announcements by ICE/NYSE on 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 may also be low risk, with bitcoin’s 30-day volatility in the low 30’s and CoinDesk 20’s in the mid 40’s. Wait and see. Wait and see.

Chart of the Week

The Silver Rush Comes to Hyperliquid

On January 26, 2026, Hyperliquid’s HIP-3 ecosystem hit a record $1.6B in daily volume, accounting for 22% of the platform's total perpetuals activity. This surge was fueled by $930M in silver trading, as HIP-3 markets become the primary proxy for betting on this year's outperforming commodities sector. Reflecting this growth, the HYPE token has rallied over 18% from its weekly lows.

Listen. Read. Watch. Engage.

• Listen: Breaking down the fight over stablecoin yield with Veda Labs General Counsel and former SEC Senior Attorney TuongVy Le.
• Read: Crypto for Advisors. Joshua Riezman of GSR, provides a United States crypto regulatory outlook.
• Watch: Kevin O'Leary breaks down his crypto allocation strategy.
• Engage: Register today for Consensus Hong Kong. Last year, the event sold out.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc., CoinDesk Indices or its owners and affiliates.