Dear CeFi Pragmatist: We Hear You
Alkemi is an API-based liquidity network. Our mission is to bridge the world of Centralized Finance (aka ‘CeFi’) to the utility and yield potential offered by Decentralized Finance (aka ‘DeFi’). This will unlock billions of dollars of market value and opportunities for both sides. Our network’s flagship liquidity pool product, Alkemi Earn, is closing the gap between these two worlds.
We get a lot of inbound questions at Alkemi from prospective network participants about what it is we actually do, questions like:
-What does ‘DeFi for CeFi’ really mean?
-What is an API-based liquidity network?
-What is this CeFi connectivity all about?
-Who cares about CeFi when we have DeFi?
-Most importantly, why should you, as a prospective network participant, care about the Alkemi Network?
We would like to clear this up once and for all.
There is lots of jargon thrown around in the crypto realm as we all know (‘yield farming’ for instance — gotta love the creativity). We at Alkemi fall victim to this. After all, we are a part of the same crypto community and communicate our value through the language of the community. Its only natural every subculture has its own vocabulary (just ask Yuval Harari) so we can’t promise that it won’t happen again :).
BUT what we can promise is that you, as our prospective network participant, will come away from this overview with a clear understanding on what is causing the “crypto chasm” to occur, how Alkemi is solving it, and why you should care.
Crossing the Crypto Chasm
If you haven’t yet read the book, Crossing the Chasm (the Silicon Valley product innovation/scaling holy book), we recommend it. Cliffnotes takeaway: it’s crucial to have a simple message to explain the value you can provide to cross the chasm between the early adopters and the early majority. The early majority, in Alkemi’s case, being the ‘CeFi’ market pragmatists.
What is a CeFi pragmatist, you ask?
Simply, these are the early crypto majority in traditional capital markets who are using DeFi-based financial products. These ‘pragmatists’ see the promise of DeFi’s increasingly sophisticated structured finance ecosystem ahead of the broader mainstream institutional market. The book comments how this is the most difficult step when building a new product segment within an emerging market category (i.e. crypto). Capturing the pragmatists’ attention.
As you will see in the following chart, we have taken the liberty of tailoring the below “chasm bell curve” from the book and added our own DeFi / CeFi flavor.
In essence, Alkemi is right in the middle of this chasm crossing — building bridges in our wake.
The early CeFi majority is already in DeFi markets and the opportunity associated with the closing of this ‘CeFi to DeFi’ chasm will be the top growth area for blockchain powered financial services heading into 2021 and beyond. Once the chasm is fully bridged (thereby unlocking the inflow of institutional grade liquidity into crypto), traditional capital markets will be able to harness the power of programmatic capital, currently a $100 billion+ opportunity.
Alkemi is closing the gap in the chasm with our network’s DeFi bridges and liquidity superhighways, which we will get to here shortly…
The Chasm Divide: What is Causing it?
Currently, the ‘early majority’ in the crypto world is made up of ‘CeFi pragmatists’ — financial institutions who have adopted crypto and are part of a $300bn+ digital asset market that continues to see adoption.
Simultaneously, there is a fast growing market of open finance visionaries who are creating the protocols that are powering the internet-money of the future. These protocols are increasingly becoming much more sophisticated, offering a wide range of structured finance products. This market gained significant traction in 2020 and continues to see demand ramp up (we are seeing it first hand at Alkemi), but the floodgates of CeFi adoption have not crossed the chasm quite yet, due to the following “chasm blockers” still in place— or what we at Alkemi refer to as the “three Cs” currently blocking broader institutional adoption of blockchain-based financial products:
- Capital: Bridged summer 2020 via the yield farming frenzy and subsequent $13bn+ TVL run up. This capital inflow got the attention of institutional counterparties. Next comes the institutional-grade liquidity, which Alkemi has a direct hand in facilitating.
- Connectivity: Seamless integration between Web2 (current world of databases/closed access offerings) and Web3 (blockchain based/open applications). Still yet to be crossed at scale. A much needed solution that is currently under-addressed by infrastructure providers in the markets. Alkemi is solving this problem and the gap is closing quickly.
- Control: Institutional-grade capital deployment and compliance monitoring solutions. Still yet to be crossed at scale in the web3 world. A much needed solution that is one of the most under-addressed areas in the space by infrastructure providers. Alkemi is solving this problem. We expect that solutions in this area will be in high demand come 2021.
In short, web2 fintech players are beginning to position themselves as the web3 capital onramp and Alkemi is right at the intersection of this with our offering. There is a mutually beneficial opportunity for CeFi institutions to embrace DeFi protocols and unlock $100s of billion of market value that will continue to expand as more participants join the growing internet-first capital markets system powered by blockchains.
Bridging the Chasm: the Alkemi Solution
So how is Alkemi closing the crypto chasm? Look no further…
Alkemi has created the plug ‘n’ play technology to solve the capital, connectivity and control issues separating CeFi from DeFi. We are building bridges and liquidity superhighways to help our network stakeholders cross the CeFi to DeFi chasm.
Alkemi is for centralized exchanges, infrastructure providers, and asset managers who are dissatisfied with the fragmented crypto experience. Alkemi’s core product is an API-enabled liquidity pool that provides turnkey ‘DeFi’ market access (retail) tailored to ‘CeFi’ execution layer, while uniquely enabling both sides to benefit.
We unlock web3 value transfer for the web2 CeFi user, solving the fragmented distinction between the two user experiences. To use our liquidity pool, it won’t require a complete shake-up. Just think of it as plugging into a voltage inverter, so that the centralized exchange users, asset managers, and/or other infrastructure providers can power-up to access these extra value features.
We sit in-between the CeFi institutions and the DeFi protocols, providing a ‘one-stop’ CeFi access portal to our own permissioned liquidity pool as well as other DeFi markets. Our users can borrow/lend/transact on core digital asset markets with KYC/whitelist functionality as well as tap into other existing DeFi markets via our programmatic API tool suite.
At present, Alkemi Earn can be accessed in 3 ways:
- via our custom-built front end with web3 wallet accessibility;
- via our API system built for those who prefer to engage programmatically;
- via white-label with our soon-to-be-announced CeFi infrastructure partners (hint, hint!)
We have built our system to be inherently modular, programmable, and scalable. On Alkemi, ecosystem partners have the institutional-grade features needed to sufficiently deploy capital in a trusted counter-party environment while staying true to the principles of DeFi’s open finance ethos.
We have much more to share in this arena, including a network launch announcement, so stay tuned in the coming weeks!!
Post-Chasm Growth Opportunity for Alkemi
Big Picture Digital Asset Trends: Macro tailwinds continue to bring institutional (CeFi) attention to the digital asset space. The financialization of the world (aka markets-rule-everything-around-me), the continued digitization of products / services (look no further than the pandemic-induced 2020 economy), and an upgraded capital markets system built on blockchains instilled with democratic principles (crypto’s market cap growth being one data point) are some of the major drivers pushing the sector forward.
Crypto ‘Chasm Crossing’ Trends: Micro tailwinds for the space have picked up significantly in 2020 with large traditional asset managers acquiring Bitcoin through CeFi-based crypto solutions (BTC is just the tip of the crypto iceberg), the minting of various blockchain-based stablecoins (e.g. the gateway digital asset to DeFi products/services), and the DeFi driven ‘yield farming’ frenzy summer 2020 ($13bn+ in total value locked). Considering that DeFi TVL was ~$600m in November 2019, it’s a considerable uptick in participation only one year later.
Furthermore, its become clear that the increasingly bifurcated cryptoasset markets are seeing exponential growth despite each other— ‘DeFi’ via protocol-powered/ web3 tech and ‘CeFi’ via its better user experience, web2 tech, and first mover advantage in the space. The major disconnect: DeFi outlets want CeFi-grade liquidity, but don’t know how to get it. CeFi investors interested in DeFi markets/programmability, but don’t know how to access it. The race is already on to connect these two worlds — a growing ($100bn+) opportunity.
Who is in the Early Majority Today?
Now that it is clear what Alkemi does and the opportunity we are addressing, here’s a peek at the core categories of early users on our platform to date:
Our stakeholder network, which consists of both DeFi markets (on the left) and CeFi partners (on the right), not only illustrate the existing “chasm gap” in the digital asset market, but also underscores the significant opportunity that exists to connect the two. We are well on our way to bridging this gap, a few quick partner-focused highlights (product updates to follow soon!) on our success so far:
- 15+ go-to-market “CeFi pragmatist” and “DeFi early adopters” launch partners engaging as network stakeholders within our ecosystem
- $100m+ Assets Under Protocol (‘AUP’) liquidity pool target. We are actively onboarding asset managers and infrastructure providers to Alkemi Earn, our institutional-grade liquidity pool
- Key “CeFi Bridger” partnership with an infrastructure provider powering 50+ exchanges and hundred of billions in notional network trading volumes
- The always elusive “Product Market Fit” solved:
1) Continued ecosystem adoption. Alkemi is tapping into a growing ecosystem of asset allocators (borrowers/lenders/traders) looking for institutional grade liquidity solutions built on-chain
2) Increased product demand. The growing need for institutional liquidity, connectivity, and control for DeFi products — enabling lower cost of capital use cases, programmatic capital deployment flexibility, and/or additional opportunities for maximizing return on capital
- Progressive decentralization plans in motion. Alkemi Network foundation formation and our subsequent token incentive mechanism design in progress. We are progressively decentralizing and will run our network in a democratic fashion, building upon the ethos of the DeFi world. More detail on our plans here soon!
How will Alkemi Drive Mainstream DeFi adoption?
Alkemi Network’s objectives and roadmap going forward are as follows:
- Expand the ‘CeFi bridger’ partnership ecosystem with centralized exchanges and CeFi infrastructure providers (providers like custody, stablecoin issuers, and/or prime brokers). These bridgers, as we call them, are core to our strategy — they serve as traditional finance onramps for the burgeoning web3 capital world
- Grow ‘AUP’ liquidity to $100m+ in Q121 with a 50%+ network utilization threshold. The Alkemi Earn liquidity pool is area of focus for this metric. Users can lend/borrow core assets in a trusted counterparty environment.
- Foster community and network participation. 1) formalize more alliances with key DeFi protocols who are focused on expanding to CeFi; and 2) engage early institutional stakeholders of the Alkemi platform further with products that solve their problems while providing additional network incentives (more to come on our token mechanism/liquidity mining program!)
- Scale. Doubling down on Alkemi’s inherent product modularity, the network has been architected for scale and product utility. The focus as we go forward is to grow our team/product offering by diversifying the platform’s tooling for bridgers while simultaneously deepening Alkemi’s network capital
Crossing the Crypto Chasm (Recap)
- Alkemi’s core product is an API-enabled liquidity pool that provides turnkey ‘DeFi’ market access (retail) tailored to ‘CeFi’ execution layer, while uniquely enabling both sides to benefit.
- We are partnering with both sides of the crypto ecosystem (CeFi and DeFi) to solve the “three Cs” that are currently responsible for the crypto chasm. We are building bridges and liquidity superhighways for our network stakeholders to close the chasm gap.
- We are off to fast start and have even bigger growth plans in store for 2021 as we expand our team/product offering, scale our network capital, and foster community amongst our stakeholders.
- Get in touch below if you would like to join us on the journey ahead!
Onward and upward,
The Alkemi Team
🙏 Thanks to Ryan Breen, Engin Erdogan, Max Luck, Ben Cooper, and Vladimiros Peilivanidis who contributed to this post 🙏