How an RWA credit facility blows up 1. You deposit USDC into an onchain credit facility and get a yield-bearing stablecoin in return ("USDX"). USDX is backed by a portfolio of loans to offchain borrowers, according to the marketing. 2. USDX's issuer creates a Morpho market where you pledge USDX and borrow USDC, up to a 91.5% LLTV. You go to Morpho, post your USDX, borrow USDC, buy more USDX, and repeat. You now have 10x leverage. 3. Morpho values USDX using the portfolio’s NAV, relayed onchain by a “Verified NAV Oracle.” The oracle doesn't verify that the loans are worth that amount, or that the collateral can be liquidated. They pass along the issuer's self-reported NAV, which increases mechanically at par plus the coupon rate. If you bought on Day 1 at $1.00, and the annual coupon was 7%, it would be worth $1.07 on Day 365. 4. The borrowers begin to deteriorate offchain, payments stop flowing in, covenants are busted. Your Morpho position looks fine because the USDX price from the oracle continues to increase. 5. Finally the issuer marks down the NAV, on the quarterly schedule. Assuming a 91.5% liquidation threshold, a position at 90% LTV only needs a 1.64% decline to be liquidated. Several looped positions immediately fall underwater. 6. The markdown causes a run. USDX holders submit redemptions at the published NAV. The issuer pays the first redeemers from its cash sleeve, leaving the remaining token supply backed by a less liquid loan book. 7. Once the cash is exhausted, the issuer pauses redemptions, or begins selling loans at a discount. USDX is listed on DEXs - to facilitate orderly liquidations in situations like this - but it trades far below NAV because it can no longer be converted into cash. 8. On Morpho, USDC suppliers withdraw the remaining liquidity, causing borrowing rates to spike and pushing the debt positions further underwater. 9. A liquidator shows up and buys USDX, repaying a portion of the debt. They try and trade it on the DEX but it can't absorb the volume. They try and redeem directly with the issuer but they are stonewalled. They find out the token doesn't actually represent a legal claim on the collateral, or really anything, despite what the marketing said. 10. No other liquidators show up. At a 91.5% LLTV, the liquidation bonus is only ~2.6%, not nearly enough to step in and pursue recovery. 11. You lose your initial investment. The CEX "Earn" depositor who unknowingly funded the whole operation (via an embedded curator vault), loses their entire position.

SEC confirms that a token issuer's ongoing efforts after their protocol is functional do not constitute "managerial efforts" under Howey. Huge update + addresses the main concern w/ their prior guidance.

Gensyn deepens prediction market research with new experts Raf Frongillo and Bo Waggoner have joined Gensyn bringing their extensive experience in prediction market research, work that is essential to building machines that predict the future Read more: gensyn.ai/news/prediction-ma…

Popular distrust in AI is growing. We can solve this with bureaucracy - enshrining a few companies to build all the models and meter out access Or we can solve it with math and cryptography, allowing anyone to prove what's in the model, including the data it was trained on.

today we announced OPEN-1B, the world's first fully auditable transformer training run OPEN-1B proves that we can log and audit every single step of AI training and inference, providing proof of its training data, recipe, biases, and weights open1b.gensyn.ai/

📍RWA Summit, NYC

"We need infrastructure like oracles that can verify offchain state such as covenants, collateral perfection, NAV (net asset value), etc." @_jamico on verifiable oracles

Can RWA credit vaults scale if depositors don’t have direct legal claims on borrowers or collateral? @_jamico of @gensynai says many investors are simply trusting the platform to pay them back and argues that stronger creditor rights are needed before the sector can scale safely. news.bitcoin.com/interview/g…

back when i was running a crypto fund, i used to think about this a lot. i love money markets and i really wanted these activities onchain. everyone focuses on how good the underlying collateral is, but the real question for me was always: if things move against you tomorrow, who actually controls it? at 90% ltv, you can be economically wiped on a ~10% move while the nav is still stale and redemption is weeks away. and if the lender can’t directly acquire the crypto underneath, the fact that it’s liquid doesn’t help much. some of my portfolio companies did implement this but not at scale.

The @Delphi_fyi information markets can now be settled automatically with verifiable ML models. Markets can be created over anything - and the creator configures how the ML model should run. $51k of volume processed by the system so far! 💪

How to get 10x leverage on private credit 1. You go to JP Morgan and tell them you have $100 of shares in a non-traded private credit fund ("Red Dove") and you want 10x leverage. Red Dove makes loans to crypto hedge funds and passes along the yield. 2. You tell them the loans are short term and backed by crypto collateral. They ask to see the Subscription Agreement but you didn't sign one, you just deposited money into Red Dove's online platform. They ask to see the Security Agreement, to confirm the underlying collateral was pledged correctly. You haven't seen this either. They ask if there is any proof that you own shares in the fund. You tell them you have a digital receipt and point them to the platform's Terms of Service, a standard SaaS TOS. 3. They ask how the digital receipt is valued. You tell them that it's formally marked every quarter, but otherwise it increases at par plus the accrued interest. Have they ever marked the loans down? No, these are institutional borrowers. Have they ever liquidated the collateral? No, the team has a background in underwriting. 4. They ask how they would liquidate the digital receipt, in the event the NAV fell, or rates increased, and your margin went underwater. You say they could go to Red Dove and redeem, although this takes 1-2 months lead-time. They ask if any legal rights automatically transfer to them when they acquire the digital receipt. No, they need to be first approved by Red Dove. What happens if Red Dove doesn’t approve? 5. They thank you for coming in, and politely decline the offer. You ask why, they tell you that there’s a clear mismatch between the funding you’re seeking and the assets you’re financing. Most they could do is 5% LTV, but even that’s unlikely given the legal issues. As you walk out, they begin to dial the SEC, you tell them you don’t need them, you can get this financing elsewhere.

How most "RWA credit vaults" work today 1. You deposit USDC into a smart contract and get a "yielding stablecoin" in return. 2. The affiliated labs co / foundation takes your money from that contract and lends it to an offchain borrower. Sometimes the borrower pledges / sells assets to an SPV as collateral. The SPV is usually managed by the labs co or an affiliate. 3. You have *no direct legal relationship* w/ the end-borrower, and only a Terms of Service w/ the labs co / foundation, which disclaims all liability. You are not a lender to anyone, just a "depositor" into a "protocol". 4. You have no transparency into the ongoing health of the loan / collateral, other than a monthly or quarterly report by the platform. You may have a dashboard, but it doesn't prove that the loan exists, the SPV owns it, the collateral is still there / hasn't been repledged, or the covenants are being met. 5. In a default, you are an unsecured creditor (at best) to the labs co / foundation, which expressly disclaimed liability in the TOS. You have no recourse against the end-borrower or its collateral. RWA credit is an extremely promising direction! And a natural fit for smart contracts, stablecoin payments etc., if you set it up correctly. But there's a long way to go.

Lord give me the confidence of a crypto lender depositing into DeFi and earning 100 bps below SOFR

Great report from @FalconXGlobal on Gensyn's AI oracles, and how they settle on-chain markets like @Delphi_fyi.

Enjoyed this conversation with @JacobRobinsonJD on prediction market oracles and how to fix them.

RWAs need better oracles. Can't just relay the borrower's claims at face value. Need to independently verify collateral / covenants on a regular basis.

The way to keep open source legal is to make it even more open. Weights, data, recipe should all be open source and provable. Show you didn't train on harmful data or steer the model. Doesn't eliminate risks but strikes the right balance.

Nemotron hasn't cracked the Chinese OS stranglehold, despite being free for 2 weeks. Would love to see user geo data from @OpenRouter. Possibly an East vs. West thing.