David Lawant, FalconX Head of Research, on DeFi, future of digital assets, and more

David Lawant joined FalconX at the end of 2022 as Head of Research. Previously, he spent almost three years as director of research at Bitwise Asset Management, where he notably co-authored the CFA Guide to Blockchain and Crypto. Before moving to crypto, he spent more than 10 years as a sell-side analyst covering LATAM stocks for J.P. Morgan and Itaú BBA. He was ranked by Institutional Investor as a leading analyst in his industry for six years running. 

How did your experience working for major banks such as J.P. Morgan prepare you for a career in crypto?

Before my career in finance, I was a software engineer. One of the main factors that attracted me to crypto was the possibility of merging my more technical early career with my later interest in economics and finance. Having a background in both engineering and traditional finance helps me communicate with a broad audience in the crypto industry. My experience working with a broad range of asset classes and financial instruments also gives me valuable insight into the problems we’re solving at FalconX.

As Head of Research at FalconX, what are some of the main objectives of your research?

I see a big opportunity to provide sell-side research from the point of view of an institutionally focused broker in the digital asset space. The fast-paced and rapidly evolving nature of the markets mean that having a dedicated research team is, crucial for helping our clients identify new investment opportunities, stay up to date with industry developments, and understand the risk landscape. 

At FalconX, we do this by using our strong relationships across the industry and leveraging our own proprietary and external datasets informed by deep fundamentals.

We  produce reports for our clients and are rapidly expanding our research products. FalconX has a broad range of clients, from the most crypto-native hedge funds and VCs all the way to traditional finance firms taking their first steps into crypto. We’re focused on providing unique research offerings and catering to the specific needs of each one of these audiences.

What do you think is the appeal drawing institutional investors to crypto?

Now is an interesting time to have exposure. Over the last few years, the foundational technological layers have become more established, and some of the main use cases are starting to become clearer. 

Some of the developments that negatively impacted certain centralized crypto players, and triggered the current bear market, highlighted the advantages of Decentralized Finance (DeFi) applications, which went through extremely harsh market conditions unscathed. The recent U.S. banking crisis highlighted the utility of a monetary asset that minimizes counterparty risk.

This is not to say that there are no challenges. The regulatory environment is uncertain, especially in the U.S., and the industry will need to rebuild part of its infrastructure after a number of service providers failed.

The difference in recent market events relates, not to crypto, rather to fundamental risk mitigation strategies that weren’t followed resulting in market disruptions. It’s no longer a question of whether crypto will play an important part in our digital lives in the future but about the right time to reinvest in certain digital assets.

What are some areas on which innovative digital asset investors should focus?

This is one of the most interesting investment environments in quite a while. 

Blockchain systems have proved their robustness during extremely stressful market conditions. From DeFi protocols working as intended during market disruptions to Bitcoin acting as a counterparty hedge during the recent U.S. mid-sized bank failures, it’s hard to deny today that digital assets have a role to play in investment portfolios.

One thing that is different in this bear market versus the previous ones is the applications and use cases started to become more tangible. Perhaps even more exciting, the industry now has developed to the point there are many different theses and applications investors can use to connect an investment portfolio.

Aside from BTC and ETH, which have a very distinct and strong thesis, there’s a lot to be excited about in certain segments of DeFi, Blockchain scalability solutions, decentralized infrastructure networks, and more.

The challenge from an investor perspective is that all this is happening during an exceptionally uncertain macroeconomic environment that could negatively impact all risk assets, including digital assets, in the shorter term. As a result, strong fundamental risk management practices will continue to be a key factor that will differentiate the best performers in the industry from everyone else.

What has impressed you most about working at FalconX so far?

Having the privilege of working with the firm's highly experienced and talented leaders. The whole team, from engineers to traders, deeply understand their field. The opportunity to tap into all the talent is incredible.

FalconX has a rare combination of traditional finance knowledge with a profound understanding of how digital assets work. Many companies say they want to bridge Wall St. and digital assets, but FalconX is actually doing it with a focus on risk management practices familiar to regulators and Wall Street alike. Also, we're truly a global firm with a growing presence. We're a leading one-stop shop for access and continuing to help shape the space. It's exciting to be part of an organization providing access to this asset class at an institutional grade level.

Disclaimer: FalconX does not produce or distribute research materials/reports as defined under CFTC Regulation 23.605(9)

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