The Next Frontier of Capital Allocation
Liquidity superhighways and DeFi bridges
Alkemi is an API-based liquidity network. We are on a mission to bridge DeFi and CeFi with our flagship product, Alkemi Earn.
It’s been almost exactly a year since we last updated you here at Alkemi. Since then, we have been hard at work, building our protocol infrastructure, establishing institutional partnerships, and learning from the rapid evolution of the Decentralized Finance (‘DeFi’) universe. Highlights from our journey to date include:
- ‘Alkemi Earn’ Mainnet Release (Dec 2020) — Instant, integrated liquidity pool access built for financial institutions (‘CeFi’). Borrow/lend on 5 core markets with whitelist functionality.
- ‘Alkemi Dispatch’ Bridge API — turnkey cross-protocol liquidity via one programmatic interface (‘liquidity superhighway’)
- GTM Partnership with an exchange/liquidity infrastructure provider powering 50+ exchanges globally—Alkemi’s key ‘DeFi bridge’ partner
- $30m+ in Assets Under Protocol (‘AUP’) — Alkemi’s core KPI metric
Over the next several weeks, be on the look out for more exciting updates ahead! We have lots in store. 🚀🚀
We have talked a lot about ‘open finance’ and ‘prime brokers’ in previous updates. In the series of our forthcoming updates, we will be resurfacing these terms but in a new light. In short, our narrative has evolved in parallel with the movements in DeFi universe, but our mission to democratize capital markets remains exactly the same.
Yield Farming to Institutional Liquidity
To level set, we need to be clear on what we mean when referring to centralized and decentralized capital markets. The below table is the pros & cons overview of each type of system:
DeFi to date has broadly been driven by a retail ‘farming’ bubble. A catalyst of this magnitude, more specifically the $10bn+ TVL this year on DeFi protocols was essential in order to drive this frontier of digital assets toward away from the fringe and toward mainstream adoption.
This run up had a positive impact overall because it has gotten the attention of centralized financial services providers (look no further than the Chicago DeFi Alliance) who are the gatekeepers of traditional capital markets and underpin the overall efficiency of the traditional financial sector (e.g. Flash Boys).
The Emergence of “Digital-First” Capital Markets
The open, borderless, capital flows system that DeFi markets brings to the table is proof that what’s currently being built right before our eyes is the piping for a “digital first” capital markets system.
In a capital markets system that is inherently digital, global, and programmable, speculation is a feature, rather than a hurdle to overcome. Speculation in financial markets has allowed for massive wealth creation of people all around the world in previous instances for decades and it will continue to be the case for decades to come in this burgeoning digital-first open value system.
Why Institutions are Late to the Game
Most of the institutional market (outside of a select few early CeFi adopters) have been on the sidelines this year watching the run up in value occur within a fragmented asset market with alpha ripe for the taking (just ask the folks at Robinhood — institutions love to trade against retail) and the high potential of this new frontier for structured finance — historically the economic engine of traditional capital markets.
CeFi has on been on the sidelines to date because they have failed to find an entry point into this open finance world that 1) satisfies their risk control requirements; 2) their compliance department requirements; and/or 3) offers an experience tailored to their current FinOps activities.
Up until this year, the risk has not been worth the reward for these institutions to take the leap into DeFi markets, but that is changing fast. It’s one of the problems we are addressing head on with our platform, Alkemi Earn (e.g. solving for the “Three C’s” — connectivity, control, and capital) and we have seen strong demand from our network so far (and we are only just getting started!), having deployed a live product last month and now in the process of launching Mainnet with 15+ network partners.
What’s Next? Look out for Bridge Builders
The flow of institutional liquidity will exponentially multiply the value of DeFi. The infrastructure and use cases for financial services institutions are being developed at this very moment (see above meme) and that’s exactly why it is the investable opportunity in the space right now.
Alkemi is at the forefront of this bridge building, connecting the liquidity highways. More on what we have in store over the coming weeks 🌉🛣️
For those interested digging in deeper, here are a few other resources pointing to institutional DeFi market adoption:
- Kyber Network collaboration with the Chicago DeFi Alliance
- Outlier Venture’s recent post on DeFi institutional adoption
- Arjun from Paradigm’s recent post on crypto market structure 3.0
- US Comptroller of Currency acknowledging mainstream DeFi
- Nyctale: DeFi to CeFi Bridge
- Binance: Why Centralized Exchange Days are Numbered
Onward and upward,
The Alkemi Team
🙏 Thanks to all who contributed to this post: the team at Outlier Ventures, (specifically Charlotte Kapoor, Vladimiros Peilivanidis, and Matus Steis), our many strategic advisors, and, of course, the here team at Alkemi for continuing to execute on our mission to democratize capital markets🙏
