Latest articles

June 26, 2024
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Introducing Model Version 3 of Statistical Ratings

We are excited to announce the release of Model 3 (V3) of our Statistical Ratings. V3 represents a significant upgrade on v2. It’s trained on twice as many defaults, has twice as many explanatory variables and covers 50% more counterparties.

Insight
June 18, 2024
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The evolution of crypto risk management

This article explores the risk controls that crypto asset managers need to support a successful and sustainable performance record.

Insight
May 15, 2024
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The Risk That Tripartite Agreements Can’t Mitigate

Position Replication Risk (PRR) occurs when an investor has an expectation of how a position will perform – either as part of a hedged position or as a portfolio allocation decision – but loses that position when their counterparty defaults. To be flat in a hedged construct, or to replicate the position they had on previously, they now must go into the market and replicate the position previously had.

Insight
April 23, 2024
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Credit Loss Distributions: How Crypto and TradFi Are Converging

Credit risk correlation, when the default of one entity increases the probability that another will default, is often overlooked in crypto risk management. These correlations can be direct, as was the case with Voyager, or indirect, so called third cause correlation. An example of the latter also occurred in 2022 when Vauld and Celsius were both taken down by Luna’s collapse and the subsequent market volatility--the third cause. While this inter-relationship doesn’t affect expected losses, it does impact the distribution of losses and thereby risk exposure and capital requirements.

Insight
March 19, 2024
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Higher Volatility, Higher Risk

“What goes up, must come down,” is the saying. “What goes up and never comes down,” is the riddle. As BTC and other digital asset valuations have climbed over the past few months, the capital cushions of market makers has risen, and their leverage has fallen. Yet this month, Agio’s aggregate industry default risk is essentially flat, if not gently rising. What gives? It’s all about the chances of going up and down.

Insight
February 12, 2024
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Default Setting: CEX Failure Rates

One of the first Agio blogs was about the apparent phase change in drivers of default over the past few years. Prior to 2020, centralised exchanges tended to default because they were either hacked or turned out to be frauds. Mt Gox is the poster child of this era. But over the past few years, defaults have been increasingly caused by commercial misjudgments and poor risk management. This is a more recognisably TradFi pattern.

Insight
January 8, 2024
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Use-Case Eras: Return of the ICO

Use-cases will ultimately determine the fate of digital assets and, by extension, the default risk of its participants. Better use-cases will drive growth and revenues. Recently, a member of our Advisory Board argued that there have been several use-case eras which have characterised crypto’s development. We are now in the “store of wealth” era. Previously, there have been “money transmission” and “project funding” eras. As we head into 2024, is the project funding use-case about to undergo a renaissance?

Insight
December 18, 2023
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Bitcoin: Profusion or Diffusion

As we approach year-end, the recent Bitcoin rally means that the main crypto-currencies have just about doubled since January. This takes them back to the valuations last commanded in early 2022 -- prior to the UST depeg, collapse of LUNA and subsequent defaults of 3AC and FTX. So did something get better or did the market simply roll a six? We’ve undertaken some timeseries analysis to explore this question.

Insight
November 22, 2023
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The Bigger the Better: Default Risk Drivers

When we created Agio 18 months ago, our first controversial act was to label FTX nine times riskier than Coinbase. All the beta-testers rejected our thesis to varying degrees. They rhapsodised about the platform. It had market depth, keener prices, and great customer service. But in our view that had nothing to do with default risk.

Insight