White Star Capital Digital Asset Fund - Announcing our latest investment - DeFi on Bitcoin with ALEX
Today, we are excited to announce our investment in ALEX!
While Bitcoin and its $1 trillion+ market capitalization have captured a lot of the mindshare of the public, to date its use cases have been restricted to a peer-to-peer payment network and supra-national digital store of value due to its 10 min block times, and limited scripting language. Other smart contract focused blockchains like Ethereum and other platforms such as Polkadot, Cosmos, and Avalanche, on the other hand, aim to enable a new generation of decentralized applications powered by public blockchains. Such smart contract focused blockchains present characteristics such as:
Users owning their encrypted data on open networks
Users interacting with each other through cryptographically signed messages on smart contract platforms that act as open, programmable ledgers
The entire tech stack being open source for the first time, from hardware, software, to network and, now, to data, enabling composability across applications (given smart contracts essentially act like open APIs)
A collapsed speed and cost of transferring information and value relative to our current internet and financial infrastructure
This new tech stack, powered at the protocol layer by open blockchains, specifically that of Ethereum, has given birth to a new monetary and financial system. DeFi extends the basic premise of Bitcoin, that of digital money, and expands on it to create an alternate, upgraded financial system without many of the associated costs of legacy solutions and represents a $100 billion+ market on Ethereum alone. Ironically, however, DeFi has thus far extended this premise beyond the Bitcoin ecosystem itself, until now with Stacks (native token $STX) and ALEX.
Built as a smart contract layer on top of the Bitcoin blockchain, Stacks (formerly Blockstack) provides software for internet ownership, which includes infrastructure and developer tools to power a computing network and ecosystem for decentralized applications (dApps). Its focus is to replace the reliance on centralized cloud service providers and apps that harvest and monetize user information. The Stacks network allows users to directly own digital assets like usernames, domain names, computer programs, etc. On the Stacks blockchain, computing is done on the edges (i.e. client devices), and applications on the platform store data individually and use the blockchain only when necessary. Stacks' native smart contract language Clarity and a new consensus mechanism called Proof-of-Transfer (PoX) brings Ethereum-like programmability to the Bitcoin blockchain. Under PoX, independent Stacks miners secure the network by pledging Bitcoin as collateral in exchange for the chance to earn newly minted STX tokens. The pledged Bitcoin then goes to STX stakers (which Stacks calls "stackers"), who also help secure the network. In the few months since their smart contract launch, the Stacks ecosystem has blossomed to power multiple use cases, as outlined in the figure below.
Stacks Ecosystem Map
ALEX is the first open-source DeFi protocol built on the Stacks blockchain. Building on top of Stacks allows ALEX to access the liquidity, power, and safety of Bitcoin. Stacks makes Bitcoin a programmable base layer, enabling decentralized apps and smart contracts that inherit bitcoin’s strengths. Through ALEX, users can launch their tokens, trade tokens, lend BTC, USDC, and any Stacks or ALEX native tokens to earn fixed or variable interest, borrow without risk of liquidation, and earn yield via yield farming.
With ALEX, bitcoin holders will be able to lend and borrow bitcoin with a superior user experience and more competitive rates, relative to other DeFi protocols on Ethereum or other blockchains. Bitcoin traders can build sophisticated services and strategies on ALEX to provide liquidity and participate in yield farming across multiple pools available at ALEX. Start-ups can issue tokens and ‘raise’ Bitcoin on ALEX to build better community-owned projects with low capital requirements from the team.
ALEX is currently running their testnet with their mainnet launch in the coming weeks. The team has published several whitepapers regarding their tech stack: Collateral Rebalancing Pool, Yield Token Pool, and Liquidity Bootstrapping Pool. Additionally, the project has been chosen by prominent STX projects Moonray and CityCoins (which the city of Miami notably embraced, recently claiming their Bitcoin treasury, while San Francisco is the second city set to join with New York following) to power their DeFi infrastructure.
We are extremely excited about the rapidly growing Bitcoin DeFi market, and more specifically about ALEX, and its highly talented team helmed by Chiente and Rachel.