From the Co-Founders: ALEX’s Exciting Journey with Bitcoin and the Path Forward
Key words: Bitcoin DeFi, Ordinals, Lightning, Stacks, ALEX, BRC20, DEX, L2 solution, Indexers, Clarity language, permissionless listing.
The DeFi landscape is teeming with possibilities, and at the heart of it all, Bitcoin DeFi is set to take center stage. In the coming years, we expect a surge in growth revolving around Ordinals, BRC20 tokens, Bitcoin L2 in particular Stacks.
A quick retrospect shows how Ordinals have brilliantly showcased the potential of the Bitcoin blockchain. This revolutionary platform has turned the table, illustrating that Bitcoin’s ledger is more than just a settlement layer. In parallel, Lightning’s recent introduction of the Taproot Asset Protocol solidifies its position as the go-to layer-2 (L2) solution for lightning-fast Bitcoin transactions. Yet, to build a truly meaningful DeFi ecosystem on Bitcoin, transactions are only one piece of the puzzle. We need a competent smart contract and computing layer to complete the picture. That’s where Stacks steps in.
The domino effect triggered by Ordinals has kindled an era where we expect Bitcoin’s Layer 1 (L1) asset issuance to skyrocket. Stably’s recent announcement of the first BRC20 stablecoin, backed 1:1 by fiat dollars and custody by PrimeTrust, is a prime example. Coupled with Lightning’s/TAP’s L2 payment capabilities, and Stacks’ prowess in handling DeFi and other economic activities, we see a flourishing ecosystem set for the years ahead.
At ALEX, we’re not mere spectators. We’re an integral part of this vibrant, multi-year growth story. Our aim? To deliver a top-notch DeFi platform that caters to the next-gen Bitcoin users, innovators, and the broader ecosystem.
Our recent launch of B20, a BRC20 Orderbook DEX, is a testament to our commitment. The unique character of BRC20 tokens, built on a fundamentally non-fungible blockchain, sparks intrigue among many. Even though Bitcoin’s blockchain doesn’t enforce the token standard rules, and the token operation is often slow and inefficient, the allure of Bitcoin being more than just a payment system is irresistible.
Consider the example of Unisat, who developed an “indexer” to address these constraints. They offer a wallet that helps users navigate these limitations and offer a marketplace based on PSBT (Partially Signed Bitcoin Transaction). However, these L1 solutions are not without their shortcomings. The speed of network confirmation and network congestion pose considerable constraints to growth. Plus, the risk of tampering with a centralized off-chain indexer cannot be ignored.
This is where the need for L2 solutions comes into play. It’s not just the steep gas fee on Bitcoin L1, but the slow confirmation time that pushes users to migrate to L2s for faster, cheaper confirmations. Without significant congestion, Bitcoin L1 often charges over $2 as gas fee. On Stacks, even complex transactions cost no more than 0.1 STX (~$0.06). With the introduction of our Orderbook launched in early May, Subnet, and Nakamoto release in Q4 2023, we are steadily improving confirmation times and user experience on Stacks. This is bound to incentivize more economic activity migration, especially as Bitcoin L1 asset issuance continues to grow.
B20, our scalability solution, uses roll-up technology, and is steering Bitcoin’s trading landscape in a new direction. With its roll-up technology, B20 significantly reduces network load on L1 by diverting all traffic to itself, offering users a familiar and efficient trading environment that mirrors a centralized exchange (CEX).
Once users “peg-in” their BRC20 assets into Stacks, the assets are automatically transferred to their B20 trading accounts. Here, they’re free to engage with the user-friendly orderbook. The hallmark of this system is the instantaneous trade confirmation backed by an underpinning smart contract on Stacks. All transactions settled here will ultimately find their way into Bitcoin blocks. As a result, B20 alleviates network congestion on L1, elevates the user trading experience, and guards user funds against potential double-spend threats.
Switching gears, the prevalent challenge with current solutions lies with the vulnerability of the centralized off-chain indexer. Many in the field, including us, consider the establishment of an on-chain, tamper-proof, and censorship-resistant indexer to be pivotal for wider BRC20 adoption. To that end, we’re collaborating with pioneers like Domo, the creator of the BRC20 standard, as well as engineers at Hiro System, to construct an ‘indexer of indexers.’
This concept capitalizes on Stacks’ unique attributes as Bitcoin’s L2, leading the charge for decentralized consensus on BRC20 indexing. The setup involves off-chain indexers submitting events to the on-chain indexer, which then verifies each event through Stacks, either accepting or rejecting them. Wallets and decentralized applications can query this on-chain indexer for valid events, marking an exciting step in our mission to transform the face of Bitcoin DeFi.
While we’ve seen a dip in the Ordinals and BRC-20 activities recently, the critical inquiry remains: will the trend we envisage persist? ALEX, and by extension Stacks, is a concentrated bet on this view.
Presently, a good number of BRC-20s may appear to be meme coins, but we foresee a significant shift. We are witnessing more established projects considering BRC20 issuance. Take, for example, our own BRC20 token, $b20, which offers protocol utility, or $OZ$, a utility token issued by a web3 game project as a BRC20. Stably is another notable example with its planned issuance of a stablecoin. Moreover, numerous other projects we are in discussion with are considering issuing BRC20 tokens to augment their existing tokenomics and tap into a new audience.
Some may argue that Bitcoin began its journey as a “meme” coin, with its initial purpose being to buy pizza amongst friends. However, the essential query is whether the technology enabling the creation of such meme coins can transcend that purpose. We are confident that BRC20 and Ordinals hold a greater potential than just being meme coins.
In this emerging landscape, as Bitcoin establishes itself, the competition is bound to heat up. Developers and capital will be attracted to Bitcoin, and ALEX will be faced with three distinct competitive pressures — attracting Bitcoin L1 asset (e.g., BRC20) trading volume, competition in Bitcoin L2, and competition within Stacks.
In attracting Bitcoin L1 asset trading volume, our primary competitors are centralized exchanges (CEXs). We’re confident that not all BRC20 liquidity will migrate to CEXs, given the many reasons why liquidity remains on decentralized exchanges (DEXs), despite their traditionally weaker user experience. As a DEX that offers a CEX-like trading experience, ALEX possesses a key competitive edge.
In the realm of Bitcoin L2, we are beginning to see a surge in innovative projects with plans to build on Bitcoin. This is exciting, and while we expect Stacks to continue being the dominant L2 solution for Bitcoin, we acknowledge the emergence of these competitors. Being a dominant player on Stacks equates to being a dominant player on Bitcoin L2 and, hence, on Bitcoin DeFi.
Simultaneously, we anticipate a rise in developer migration to Stacks. This is fantastic news and one reason we are raising funds is to stimulate the ecosystem development around ALEX. The current Clarity programming language on Stacks is different from Solidity/Rust, which makes the migration for EVM/Solana-based developers challenging. We plan to work closely with Hiro and others to develop the tools to ease developer adoption, encourage new developers to build around ALEX, and thus cement our position as an indispensable protocol.
So, what’s next on our product roadmap for ALEX?
Our immediate focus is to build the most user-friendly, scalable BRC20 trading DEX. As we see CEXs as our main competition, our product roadmap will mirror many of their best practices but implemented in a decentralized setting. This advantage will distinguish us from other DEX solutions, providing a far superior and richer user trading experience.
For instance, we are developing trading APIs to enable automated market-making on our Orderbook. We also aim to integrate our launchpad into the B20 product sphere to provide a one-stop trading platform for BRC20 projects. Our perpetual orderbook is ready for deployment, and we are waiting for spot liquidity to build up before rolling it out.
We also aim to leverage what sets us apart from CEXs — permissionless listing of BRC20 tokens, subject to meeting a certain circulation threshold. This is made possible by the permissionless nature of both our trading platform and the “peg-in”/”peg-out” bridge moving BRC20 assets between Bitcoin L1 and Stacks L2. We believe this non-custodial and permissionless aspect of our Orderbook will be a key structural competitive advantage compared to CEXs.
In conclusion, our vision at ALEX is to dissolve the barrier between Bitcoin L1 and L2 to create a seamless Bitcoin DeFi experience. The relationship between Bitcoin and Stacks is fundamentally different from that of Ethereum and e.g. Arbitrum. In the Bitcoin-Stacks pair, L2 equips L1 with smart contract capabilities, while in the Ethereum-Arbitrum duo, both L1 and L2 possess their independent smart contract functionalities. Therefore, a true Bitcoin DeFi experience isn’t about users having to choose between L1 and L2. Instead, it’s about Bitcoin asset holders experiencing DeFi on L1 with L2 running smart contracts unobtrusively in the background.
