Alpha Finance Lab is focused on researching and innovating in the decentralized finance (DeFi) space. Our long-term goals are to successfully onboard the general population to DeFi through an ecosystem of Alpha products that redefine and enhance traditional finance in a decentralized manner. In order to onboard the wider population to DeFi, we need to first expand the usages of DeFi to capture unaddressed demand from current crypto users first. What does that mean?

Currently, the demand and usage of DeFi and supply of assets allocated for DeFi are capped, and Alpha is looking to change that.

Demand & usage for DeFi is capped

Demand for DeFi is restricted for several reasons. Ethereum’s composable nature has given rise to the multiple DeFi products including lending, derivatives, synthetic assets and more. While these DeFi products can interoperate within the Ethereum ecosystem, the unaddressed demand for DeFi on other blockchain platforms such as Polkadot, Cosmos, and Binance Smart Chain continues to grow at a rapid pace.

If we look at the current demand for DeFi on Ethereum, we can see that the current demand for DeFi is restricted by scalability issues. Specifically, as the number of decentralized applications (dApp) on Ethereum grows and as the number of users grows, so does Ethereum gas fee and transaction processing time. This means that once usage and demand for DeFi on Ethereum grow to a certain limit, high Ethereum gas fee and slow transaction processing time present clear obstacles for users and increasingly edge out participants.

When Compound launched COMP liquidity mining program (or yield farming) in June, total fees in ETH for the first time surpassed issuance of new ETH rewarded to miners for the first time. Ethereum gas fee has continued to trend upwards such that the number of Daily Active Wallets (DAW) in July decreased by 6%. Gas fees significantly surpassed the issuance of new ETH rewarded to miners again in August when many yield farming opportunities came about (Curve, Yam, YFI, YFV, Based, and Sushi).

Source: etherscan.io, Bitcoin Suisse Research.

Supply for DeFi is capped

The asset supply for DeFi is also capped as the majority of assets are on centralized exchanges. If we compare decentralized exchanges (DEXs) and centralized exchanges, the trading volume on DEXs is significantly lower than that of centralized exchanges (although trading volume has spiked up since August 27th, 2020 due to Sushiswap driving up liquidity on Uniswap).

Source: The Block.

If we look at the current supply of assets in DeFi, which is aggregated in either lending protocols or automated market making (AMM) DEXs, we can see that there exist some issues such as impermanent loss that prevent more users to supply more assets into the current DeFi products.

How will Alpha help unlock the capped demand and supply in DeFi?

We believe cross-chain DeFi and liquidity are keys to unlock the capped demand and supply, driving DeFi into the next stage of innovation. Thus, we will be laying the foundation for the next generation of cross-chain DeFi products by providing multiple financial primitives on Binance Smart Chain (BSC), starting with Alpha Lending.

We choose Binance Smart Chain (BSC) because we believe that DeFi should expand to a platform that is faster and cheaper than Ethereum, but also support smart contract programmability (EVM-compatible) and can support ERC-20 tokens to take advantage of a large DeFi developer mindshare and user base in the existing DeFi products. Importantly, assets in Binance centralized exchange (where the majority of the assets live) can easily flow to Alpha DeFi products that are built on BSC. This brings a seamless flow of asset supply not only across different blockchains, but also between the leading centralized exchange and Alpha DeFi products.

Alpha is focused on solving problems and ultimately onboarding the general population to DeFi. This holds true for the first product we are building — Alpha Lending.

The next detailed analysis that we will share will include our take on the current lending products, problems Alpha Lending is solving, and other areas of innovation that we are working on to make Alpha Lending, the preferred lending option for the general population. Eventually, Alpha products will be seamlessly integrated with traditional finance such that anyone and everyone can use traditional finance and Alpha decentralized finance products interchangeably.