Nov 8 · 9 min read
Alkemi is an open prime platform, addressing a $4 billion immediate market opportunity to bridge the gap between traditional capital markets institutions and fragmented liquidity markets
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TL;DR
- The Alkemi Network is an open finance prime brokerage¹ platform with 3 core applications powered by decentralized liquidity pools
- Open, transparent finance is the future. By embracing decentralized technologies, Alkemi is rewiring capital markets to make it fundamentally more inclusive and inherently scalable in this increasingly digital world
- The only way to drive real mainstream adoption, to realize the massive potential of a globally accessible financial system is through institutional adoption on ramps. Bridging the gap, so to speak — Driving efficiency in digital asset markets and, thereby, facilitating the next wave of wealth creation powered programmable assets
- We are a distributed team of 8 people on 3 continents, 6 countries, and 7 cities with expertise across technology, security, crypto, design, and capital markets
- Founded in 2018, we count Outlier Ventures, Ripple (Xpring), ConsenSys (Coven.VC), Techstars, and ARC Fund as our backers to date
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We have been hard at work this past year. Planting the asset seeds and laying the liquidity pipe.
Digital assets as a category clearly isn’t going anywhere anytime soon (in our humble opinion). The impact that cryptoassets have had on the economy in terms of value creation to date has been substantial. By creating the first truly global & accessible value transfer system, this asset class has excited people around the world looking for improved ways to invest, move, and store their wealth.
Source: ARK Invest, Big Ideas 2018
In the finance vein more specifically, (i.e. #DeFi), the traction that open projects like Uniswap, MakerDao, Compound, InstaDApp, dydx, Synthetix, and Kyber (among others) have achieved in such a short amount of time is truly inspiring. Further, it is a testament to the brilliance of these teams and the legitimacy of decentralized finance as an overall category addressing market demand. See Defi Pulse’s Tracker below as substantiation.
…And the crazy part is, this value creation has been broadly driven by technologists, crypto-enthusiasts, and retail traders to date.
What would happen if this went mainstream (i.e. $1 trillion+ in market cap)? Adopted more broadly by people and institutions alike.
Imagine a digital asset world where traditional institutional capital was allocated on par with the $30 trillion United States’ public equities market. Imagine how the impact this finance 2.0 world would be in everyone’s day to day lives.
More opportunities for wealth creation. More opportunities for wealth transfer.
…We would call that world an open, transparent, efficient, liquid, (upgraded) capital market.
In our view, this reality where capital flows like water (without dams) is near. But first, a few key developments need to happen before we remove those dams. In fact, that is the goal of this post — to lay out our vision at Alkemi on how to make this world tangible.
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 of each type of system:
Note: the above reflects how we think about the market and is not an all encompassing overview of each system type. We intend to dig deeper here in a post at a later date.
Now that we have level set on the differences of closed vs. open systems, let’s dig a bit deeper from a capital markets perspective, specifically on the “decentralized” bucket.
The digital asset space moves fast with new projects & technologies frequently released (a la the beauty of open source cryptonetwork effects). A lot of phrases get thrown around in different context — all of which mean different things to many of the ecosystem participants.
One of these areas is the decentralized finance vs. open finance arena. What do these 2 terms mean and why should you care?
The promise of the internet was to unlock information / data creation exponentially (which it has done), but one key bit of infrastructure that was left out was inherent value transfer at the lowest protocol level (see Joel Monegro’s Fat Protocols thesis, as an example of this type of thinking).
So, with information out running in the wild today (technologically speaking), why can’t our capital flow freely without barriers² too? This is where the promise of digital assets and decentralized networks, i.e. where no single entity has exclusive control over data (information, value, or otherwise) flow, come into play.
Within these networks, there are generally two types of approaches to innovation within the ‘finance vertical’, defined³ as:
- Decentralized Finance: Networks that run pseudo-anonymous, could potentially be censorship resistant, cater to a global market, and are considerably more transparent thanks to operations running on public permissionless blockchains.
- Open Finance: Open finance points towards an unbundling of banking services where API-enabled startups provide niche services in a limited geographical region. They require AML/KYC and are more often B2C focused. There are many different types of companies competing in the open finance fintech vertical, with many falling in the ‘closed capital’ bucket.
So, why do these two definitions matter? It comes down to whether or not one believes a world after capital is possible. Where value moves freely without borders. Access is democratized. And the scarcity of capital is no longer an impediment to growth. Decentralized finance, in essence.
Yes, what we are referring to here is certainly idealistic and potentially a long way out from mainstream, but this thinking is core to our value structure and company ethos here at Alkemi. It is core to the ethos of the crypto community globally and a mission that we are focused on executing on, incorporating this spirit into each and every business decision we make as an organization.
To get there, opening up existing capital markets is vital. In order for the natively digital asset class to be truly impactful, institutions (i.e. gate keepers of the traditional economy) need to recognize and embrace the value of participating in the 24/7 global, digital economy, otherwise, in a Moore’s Law world, technology will no doubt leave these firms behind.
This is where open & decentralized finance come into play and why we at Alkemi are attacking this space head on with our open prime solution.
To bridge the gap between the old and the new.
Before we get to what we are building, let’s level set once more on why institutional capital matters for the space.
One of the big questions that remains unanswered in the programmable capital era is who should have a say where this value accumulates? Mr. Market? Institutions? Governments? Humanity?
In today’s mainstream traditional capital markets, governments, banks, and high flying asset allocators control capital flows. These gatekeepers of the old guard govern and restrict capital in an analog format still operating as if we live in a pre-internet, disconnected world (see context here and here).
When these institutions see reason to come into the digital finance arena, it is only then that this category will become “mainstream,” facilitating a more level playing field than finance 1.0 with real capital markets use cases (e.g. speculative investing, banking services, payments, structuring, debt financing etc.) opened up for all to access.
In short, the gatekeepers of old need to embrace the tides of change. The tides of change that raise all boats. Only then, will this new financial system become mainstream and access to greater value than ever before will be unlocked.
So how do we ramp up the open finance category to make it mainstream?
We at Alkemi think it comes down to these core 5 puzzle pieces being solved (all of which are highly complex to achieve in their own right):
Effectively, it’s got to be worth the effort for these institutions to upgrade their systems, justify the switching costs, and invest the resources to master allocation strategies for a wholly new asset class.
For those who might think the institutions are in the system already, they are not. Look no further than mainstream derivatives as an asset class that is worth ~$1.2 QUADRILLION in value. In crypto, we breach the $200+ billion market cap on a very good day.
It is clear we have a ways to go for that type of wealth creation, with the opportunity ahead tremendous.
Alkemi is an open finance prime brokerage platform, focused on bridging the gap between traditional capital markets institutions and fragmented liquidity markets. Directly and indirectly the 5 problem areas outlined above.
Alkemi’s platform provides the non-custodial infrastructure for digital assets to connect with exchanges. We facilitate open access to liquidity and streamline settlement for our customers (e.g. institutional capital allocators) and partners (exchange venues & third party providers), solving the problem of digital asset market inefficiency.
Our Company’s modular infrastructure technology platform is powered by decentralized liquidity with three applications at the core: 1) Smart Order Router; 2) Arbitrage Engine; and 3) Clearing and Settlement.
Powered by decentralized liquidity pools, Alkemi’s applications help our customers connect to our partners more seamlessly and efficiently, thus driving increased opportunity for return.
Note: we will be drilling deeper on this flow and the products we offer in our network in a post to follow.
Here at Alkemi, we believe in a better world. We believe in a place where flowing capital can be tapped by institutions and individuals alike. We believe in a world where both coexist more efficiently, more equitably, more sustainably, and more transparently.
The only true way to drive real mainstream adoption, the only way to realize the massive potential of a globally accessible financial system, is through institutional adoption on ramps. Bridging the gap, so to speak. Driving efficiency in digital asset markets and, thereby, facilitating the next wave of wealth creation powered programmable assets.
Open, transparent finance is the future. By embracing decentralized technologies, Alkemi is rewiring capital markets to make it fundamentally more inclusive and inherently scalable in this increasingly digital world.
/// Fin
🙏 _Thanks to all who contributed to this post: the team at Outlier Ventures (specifically: Dominic Moore, Joel John, Eden Dhaliwal, Jamie Burke, Rumi Morales, Charlotte Kapoor, Matt Law, Aron van Ammers, &Lawrence Lundy-Bryan), Eli Geschwind, Kapil Rathi, Kristin Boggiano, Engin Erdogan, and, of course, the team at Alkemi for executing on the mission to change the world (Ryan, Alim, Ben, Royal, Kevin, Lekan, and Haythem)_🙏
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Footnotes:
- A traditional prime broker “gives a money manager the ability to trade with multiple brokerage houses while maintaining, in a centralized master account at their prime broker, all of the hedge fund’s cash and securities.” We will dive deeper on how we are improving upon the traditional model with our the product offering in a future post.
- If you had to attach a postage stamp to your email each time, it would cost ~$160B per day (50 cents per stamp and 294B emails)!! Thanks to Mr. Eli Geschwind for this wonderful stat.
- Open and decentralized finance definitions sourced from Joel John’s “Mapping Decentralised Finance”