research.despread.io Open in urlscan Pro
2a04:4e42:200::775  Public Scan

Form analysis
3 forms found in the DOM

<form class="subscribe-form" data-members-form="subscribe" data-style="">
  <input data-members-email="" class="" type="email" autocomplete="email" placeholder="Your email address" aria-labelledby="sidebar-input-label" required="">
  <button class="btn btn--brand" type="submit">
    <span>Subscribe</span>
  </button>
  <div class="msg-success">Great! Check your inbox and click the link.</div>
  <div class="msg-error">Sorry, something went wrong. Please try again.</div>
</form>

<form class="subscribe-form" data-members-form="signup" data-style="inline-joined">
  <input data-members-email="" class="" type="email" autocomplete="email" placeholder="Your email address" aria-labelledby="cta-input-label" required="">
  <button class="btn btn--brand btn--gradient uppercase" type="submit">
    <span>Subscribe</span>
  </button>
  <div class="msg-success">Great! Check your inbox and click the link.</div>
  <div class="msg-error">Sorry, something went wrong. Please try again.</div>
</form>

<form class="subscribe-form radius-rounded m-b" data-members-form="subscribe" data-style="inline-joined" style="display: none;">
  <input data-members-email="" class="w-100 radius-rounded" type="email" autocomplete="email" placeholder="Your email address" aria-labelledby="footer-input-label" required="">
  <button class="btn btn--primary radius-rounded" type="submit">
    <span>Subscribe</span>
  </button>
  <div class="msg-success">Great! Check your inbox and click the link.</div>
  <div class="msg-error">Sorry, something went wrong. Please try again.</div>
</form>

Text Content

 * Insights & Analysis
 * Project Reports
 * Blog
 * 한국어🇰🇷
   * 인사이트 & 분석
   * 프로젝트 리포트
   * 웹3 가이드
   * 블로그

 * DeSpread Hub
 * Website

Subscribe
Sign up Sign in
 * Insights & Analysis
 * Project Reports
 * Blog
 * 한국어🇰🇷
   * 인사이트 & 분석
   * 프로젝트 리포트
   * 웹3 가이드
   * 블로그

 * DeSpread Hub
 * Website

Log in Subscribe


ALEX — THE CORE FINANCIAL LAYER FOR NEXT-GENERATION BITCOIN INFRASTRUCTURE

A Protocol to Unlock the Potential Value of Bitcoin
 * 

Seungjun Oh
Dec 8, 2023 11 min read


> Disclaimer: DeSpread, a partner of ALEX, has collaborated in the production of
> this report. Both DeSpread and the author may possess cryptocurrencies
> referenced in this document. The views expressed herein are solely those of
> the author and are provided for informational purposes exclusively. They
> should not be considered as a suggestion to purchase or sell any tokens or
> engage with any protocols. It is important to note that this report does not
> constitute investment advice and should not be interpreted as such.


THE CORE OF THE MODERN FINANCIAL SYSTEM: LEVERAGE EFFECT

The modern financial system is designed to enable the utilization of assets
without liquidating them. Such a structure allows individuals or corporations to
leverage the value of their assets, like real estate or stocks, without selling
them. This is made possible through the support of financial institutions when
needed.

Financial institutions lend money by taking personal or corporate assets as
collateral, thereby earning interest. Conversely, the recipients of these funds
are enabled to explore other investment opportunities. This process, where
investments are made with capital borrowed from others or financial
institutions, is termed the ‘leverage effect.’

A typical example of the leverage effect is in the real estate market. For
instance, a homeowner may obtain a loan by using one’s house as collateral,
which can then be used for various investment or consumption purposes. Such
secured loans offer capital efficiency to the homeowner while providing a
supplementary source of income for the financial institution.



THE LIMITATIONS AND EMERGING TECHNICAL CHALLENGES OF BITCOIN


THE FINANCIAL STANDING AND CONSTRAINTS OF BITCOIN

Financial products have been developed to maximize the use of assets that are
recognized for their value. For instance, there are derivatives like futures and
options on commodities such as gold and oil. In this context, it appears unusual
that Bitcoin, with its massive market capitalization of over 700 billion
dollars, is underutilized as a financial product.

Although products like WBTC (Wrapped Bitcoin) have somewhat alleviated this
issue, only about 1% of the total Bitcoin market cap is utilized in the form of
WBTC, indicating its still limited role. This is particularly striking when
compared to Ethereum, where about 200 billion dollars of its market cap, from a
total of approximately 2 trillion dollars, is being used in decentralized
finance (DeFi).

To understand this issue, one must comprehend the core characteristics of
Bitcoin. Since the creation of its genesis block in 2009, the Bitcoin network
has continuously produced blocks without any hacking incidents, proving its
stability. However, to maintain decentralization and stability, the Bitcoin
network was designed to limit complex functions and implement only simple
features. This has restricted its ability to execute complex smart contracts and
process large-scale transactions, hindering the full potential of Bitcoin.

Despite these limitations, there have been several attempts to leverage
Bitcoin’s high potential. For instance, wrapping methods like WBTC, where coins
of equivalent value to Bitcoin are issued on other chains with more developed
financial ecosystems; ‘Ordinals’, which involves storing data directly on
Bitcoin; and methods like ‘BRC-20’, which create a token standard based on the
Bitcoin network. Particularly, methods like Ordinals and BRC-20 have recently
gained significant attention, presenting new milestones in Bitcoin utility.


THE EMERGENCE OF ORDINALS AND BRC-20

Several technical challenges and ideas have been proposed to utilize Bitcoin,
but most have not progressed beyond the initial experimental stage. However, in
January 2023, ‘Ordinals’ emerged as the first case of adoption. The Ordinals
technology involves engraving data into the smallest unit of Bitcoin, the
satoshi, recording information such as images or text directly onto the
blockchain ledger. This data, being recorded on-chain, is immutable, making it a
popular method for data storage that leverages Bitcoin’s security.

The BRC-20 standard extends the concept of Ordinals by incorporating text
containing token-related information into Bitcoin scripts, storing this
information in satoshis. Based on this text information, the deployment,
minting, and transfer of tokens become possible, leading to the creation of a
Bitcoin-based fungible token ecosystem. However, BRC-20 is a script that does
not run directly on the Bitcoin network, and Bitcoin miners do not directly
verify its validity. As such, BRC-20 tokens could be considered just “text” but
have triggered an unprecedented activation of the Bitcoin network.

Bitcoin Transaction Fee Ratio Compared to Block Reward, Source: Hashrateindex


During the peak of on-chain activity related to BRC-20, the total transaction
fees occasionally exceeded the $BTC rewards generated by block creation, and
simultaneously, hundreds of thousands of transactions were waiting in the
mempool, causing significant congestion in the Bitcoin network. Additionally, in
May 2023, the market value of BRC-20 reached approximately 1 billion dollars,
and by October 2023, there had been 35 million inscriptions on the network. An
inscription refers to the process of engraving data into the smallest Bitcoin
unit, the satoshi. Domo, the creator of BRC-20, started this as a “fun
experiment,” but these outcomes clearly demonstrated the potential for expanding
Bitcoin’s utility and indicated high interest in the Bitcoin ecosystem.

Despite this heightened interest, there are several major obstacles to using the
Bitcoin network and leveraging the value of Bitcoin assets. For instance,
wrapped bitcoins issued by third parties significantly depend on the
trustworthiness of the issuing institutions. Additionally, the BRC-20 token
system requires considerable technical understanding, making it challenging for
average users to easily access and utilize.

To overcome these issues and universally realize Bitcoin utility, the ALEX
project was introduced. This project aims to fully leverage the stability of
Bitcoin without third-party intervention and adds programming functionality.
ALEX aims to act as a layer that integrates Bitcoin-related financial
infrastructure, striving to provide an optimal user experience possible.


ALEX: BITCOIN UTILITY INFRASTRUCTURE EXPANSION PROJECT

Source: ALEX Blog

The ALEX project is dedicated to providing users with an exceptional experience
and high security, implementing two primary strategies to achieve these
objectives:

 * Capital Aspect — Researching and offering a range of financial products and
   solutions, such as Bitcoin-based lending and borrowing services. 
 * Technical Aspect — Expansion and integration of the Bitcoin ecosystem through
   technical solutions like on-chain indexers.



CAPITAL ASPECT: ESTABLISHING THE SAFEST FINANCIAL INFRASTRUCTURE USING BITCOIN


1. ADOPTING STACKS AS THE MAIN CHAIN

Stacks serves as a Bitcoin Layer 2 solution, enabling the implementation of
programmable contracts like DeFi and NFTs on the Bitcoin network. ALEX,
leveraging Stacks, maintains the security and decentralization of the Bitcoin
network while offering programming capabilities. This strategy aims to evolves
Bitcoin into a more versatile and functional platform, where users can generate
diverse values through Bitcoin-based decentralized applications (dApps).


2. LAUNCHING A BITCOIN FINANCIAL PLATFORM WITH SBTC

Furthermore, ALEX plans to develop financial products utilizing Bitcoin assets
directly through the ‘Nakamoto Release’, a major upcoming upgrade of Stacks
slated for the next quarter. The Nakamoto Release will utilize Stacks’ feature
of directly reading Bitcoin state to issue sBTC assets, pegged 1:1 with native
Bitcoin, using smart contracts exclusively, eliminating the need for
intermediaries. This innovative method marks a clear distinction from
traditional intermediary-based asset pegging. Users will be able to directly
access the Bitcoin base layer using sBTC and use pegged assets on the Stacks
chain, fully protected by the Bitcoin network. ALEX aims to launch a platform
providing foundational elements of financial infrastructure like lending,
borrowing, yield products, and perpetual futures using sBTC.

Prior to the sBTC launch, ALEX has developed and finalized several protocols to
effectively link the Stacks layer with the Bitcoin layer, ensuring an optimal
environment for users. To facilitate easy onboarding and liquidity provision to
ALEX, the ALEX Bridge, connecting Ethereum/BNB chains with the Stacks chain, has
been developed and deployed on the mainnet. Future developments include creating
bridges between the Bitcoin chain and the Stacks chain, fostering a seamless
asset transfer environment between Bitcoin Layer 1 and Layer 2.


3. DECENTRALIZED LAUNCHPAD FOR BITCOIN ASSETS

ALEX operates a decentralized launchpad platform aimed at energizing the Bitcoin
ecosystem. This platform supports the growth of new BRC-20 projects by providing
opportunities for initial funding, community building, and project promotion.

The application for the launchpad is open to all projects related to BRC-20.
However, the final selection of projects for the launchpad is determined through
voting by ALEX governance token holders.


4. ESTABLISHING A FUND FOR BITCOIN BUILDERS

Given the nascent stage of the Bitcoin ecosystem and its immense potential for
growth, ALEX has established a fund known as the “Bitcoin Lab Fund.” This fund
not only provides financial support to Bitcoin builders but also offers
comprehensive development infrastructure, including various tools and
technologies owned by ALEX. Particularly, ALEX offers its API and software
development kits (SDKs) to other projects, leveraging its extensive experience
in developing on the Stacks layer, to facilitate their development process.


TECHNICAL ASPECT: BUILDING BITCOIN-BASED APPLICATIONS FOR OPTIMAL USER
EXPERIENCE


1. LAUNCHING THE WORLD’S FIRST ORDER BOOK-BASED BRC-20 DEX

Following the AMM(Automated Market Maker) methods used in DEXs (Decentralized
Exchanges) for token exchanges, ALEX has launched the world’s first order
book-based DEX for BRC-20 tokens, named B20. Executing tasks like minting or
transferring BRC-20 tokens requires a deep understanding of Bitcoin’s on-chain
structure and scripting, posing a significant barrier to entry for average
users. Consequently, most had to rely on centralized exchanges due to this
complexity. However, with the introduction of the B20 DEX by ALEX, users can now
trade BRC-20 tokens more securely through an order book-based UI, similar to
centralized exchanges. All transactions on B20 are securely settled on the
Bitcoin chain using roll-up technology.


2. DEVELOPMENT OF BRC-20 ON-CHAIN INDEXER

BRC-20 tokens are not deployed through smart contracts like the commonly known
ERC-20 tokens. Additionally, as mentioned earlier, the token information files
embedded in Bitcoin do not execute and are not verified by Bitcoin miners. In
essence, BRC-20 tokens are a type of virtual token created based on simple text
files within the Bitcoin network. Although these text files stored on the highly
secure Bitcoin chain are immune to tampering, the issuance and circulation of
tokens created from this text rely on external indexers for tracking.

Currently, centralized entities like Unisat, a leading wallet platform for
BRC-20 and Ordinals, manage these indexers and are building vast databases. It
can be seen as a contradiction that the BRC-20 ecosystem, which capitalizes on
the advantages of using the most decentralized Bitcoin, relies on centralized
entities.



Centralized indexers can distort data. In fact, due to version differences in
Ordinals indexers, a problem arose where marketplaces indexed different
inscription numbers, exposing users to the risk of double spending. This issue
significantly undermined the trust in the BRC-20 ecosystem and emerged as a
critical problem that must be resolved for the expansion of the Bitcoin
ecosystem.

Source: ALEX Blog

To address this issue, ALEX, in collaboration with Domo, the creator of the
BRC-20 token standard, is developing a decentralized on-chain indexer utilizing
the Stacks layer, which can directly read the state of Bitcoin. This development
will enable a token ecosystem where Bitcoin-based tokens are fully protected by
the power of Bitcoin, independent of any specific entity.


ROLE AND UTILIZATION OF $ALEX

$ALEX is the governance token of ALEX. Holding this token grants voting rights
to decide on proposals in the ALEX governance forum. $ALEX is distributed as a
reward to those who stake their LP tokens, obtained by providing liquidity to
the ALEX platform, and to participants in $ALEX staking. The total supply of
$ALEX is 1 billion, with over 630 million tokens circulating in the market as of
November 2023.


$AUTOALEX: A TOKEN FOR AUTOMATED COMPOUND STAKING

When users stake $ALEX, they receive $ALEX as a reward. Utilizing the AutoALEX
feature provided by ALEX automates the process of claiming and redepositing
$ALEX, enabling users to enjoy the benefits of compounding interest. $AutoALEX
is a token that converges to the value of compounding $ALEX without the need for
lockup. For instance, initially, $AutoALEX and $ALEX are valued at 1:1, but over
time, the value of $AutoALEX increases by the amount of the compounding interest
generated. In the ALEX pool, there is an $AutoALEX-$ALEX pair supported by soft
pegging from the ALEX Foundation, allowing users to liquidate their assets when
needed.


$APOWER: TICKET FOR LAUNCHPAD ACCESS

$Apower is a unique token used to access ALEX’s decentralized launchpad. It
can't be traded or transferred, creating an exclusive ticket system for
participation. This token is distributed to contributors in the ALEX ecosystem
and plays a role in maintaining a virtuous cycle among ALEX, launchpad projects,
and ALEX users through the following roles:

 * Reward for ALEX Staking Participants: Participants who provide liquidity to
   the ALEX pool and having LP tokens, or those staking $ALEX, can receive
   APower in addition to $ALEX rewards. As the Bitcoin ecosystem grows and more
   quality projects enter the ALEX launchpad, the demand for APower may
   increase, leading to more liquidity for the ALEX protocol.
 * Securing Potential Participants for Decentralized Launchpad: Since APower is
   non-tradable and non-transferable, and has limited utility for participating
   in the ALEX launchpad, it encourages holders to actively consider
   participating in ALEX’s launchpad. This provides motivation for Bitcoin
   projects to conduct their launchpads on the ALEX platform.
 * Resource for User Acquisition: Utilizing APower can activate ALEX’s own
   products. For example, during the launch of $ORDD on ALEX’s launchpad, an
   event was held offering APower to users of ALEX Bridging, resulting in a
   roughly 20% increase in the total amount transferred to the Stacks chain via
   the bridge during the event period.


MAXIMIZING CAPITAL EFFICIENCY WITH COLLATERALIZED LOANS

Arkadiko Finance, a Stacks-based DeFi protocol, offers a feature to mint USDA, a
stable coin pegged to 1 dollar, as a loan against cryptocurrency collateral.
Users can mint the stablecoin USDA using $AutoALEX as collateral in Arkadiko
Finance for additional investment opportunities. Notably, in collaboration with
Arkadiko Finance, ALEX is rewarding those providing liquidity to the $ALEX/$USDA
pool with Arkadiko Finance’s governance token $DIKO, in addition to $ALEX.
Through this process, $ALEX holders can convert to $AutoALEX to earn interest
from the compounding effect and maximize capital efficiency by minting
stablecoins using $AutoALEX as collateral.


CONCLUSION

ALEX is establishing itself as a financial layer for the Bitcoin infrastructure,
creating an ecosystem that leverages Bitcoin’s abundant capital and the
network’s superior security. For this purpose, ALEX has set up a Bitcoin fund to
build the Bitcoin infrastructure and is in the process of developing and has
already developed the world’s first order book-based BRC-20 DEX, a bridge
connecting EVM (Ethereum Virtual Machine) based chains and Stacks chain, and an
essential on-chain indexer for securely trading BRC-20 tokens.

Within ALEX, The entry barrier to Bitcoin for developers is lowered with
financial and technical support, and users can quickly and safely use
Bitcoin-based dApps. However, features that directly utilize Bitcoin have not
yet been officially launched in ALEX, and liquidity is still not sufficient.
Despite this, ALEX has been pursuing its roadmap continuously. In case it
successfully launches Bitcoin financial products using sBTC, it has the
potential to become a key protocol to bootstrap the Bitcoin ecosystem, making it
a crucial infrastructure that can’t be ignored.

--------------------------------------------------------------------------------


<REFERENCES>

 * ALEX, Why Bitcoin does not need DeFi, but DeFi needs Bitcoin, 2022
 * ALEX, AutoALEX: The Power of Compound Interest, 2022
 * ALEX, BRC20 and Moving Towards Decentralized Indexing, 2023
 * ALEX, Decentralizing ALEX Launchpad: A Step Forward in Community Governance,
   2023
 * ALEX, Bitcoin Oracle: Building an On-Chain BRC20 “Indexer of Indexers”, 2023
 * ALEX, ALEX’s Bold Ambition: Re-inventing Bitcoin’s Role in DeFi, 2023
 * ALEX, From the Co-Founders: Launch of Bitcoin Lab, 2023
 * Trustmachine, What is the BRC-20 Token Standard and How Has it Impacted
   Bitcoin?, 2023
 * Sanj’s tweet

DeSpread Reports
Tweet Share Share Email Copy
About the author


SEUNGJUN OH

Senior Consultant at DeSpread

 * 

Featured


디스프레드, 국내 온체인 사용 문화 조성을 위한 갤럭시 파트너십 체결

14 Dec 2023


DESPREAD PARTNERS WITH GALXE TO FOSTER ON-CHAIN CULTURE IN KOREA

14 Dec 2023


솔라나 (SOLANA) — 솔라나 서머 2.0, FTX 파산부터 지금까지

14 Dec 2023


ASTAR NETWORK — INTRODUCING ZKEVM TO EXTEND TO THE ETHEREUM ECOSYSTEM

01 Dec 2023


아스타 네트워크 (ASTAR NETWORK) — 이더리움 생태계 확장을 위한 ZKEVM 도입

01 Dec 2023
Latest


A COFFEE CHAT WITH D'S FRIENDS I GOME LEE / BRAND MARKETING LEAD

09 Jan 2024


D’S 프렌즈와 커피챗 I 이원준 브랜드 마케팅 리드

08 Jan 2024


CRYPTO REGULATION IN SOUTH KOREA: AN OVERVIEW

04 Jan 2024

DESPREAD RESEARCH

Meet our people's insight, our capabilities, our research, and the ever-changing
face of our firm.
Subscribe
Great! Check your inbox and click the link.
Sorry, something went wrong. Please try again.
Read next


REDACTED CARTEL — THE HIDDEN HAND OF THE DEFI WORLD


TRADER JOE — THE NEW DARK HORSE IN THE ARBITRUM DEX ECOSYSTEM


ASTAR NETWORK — INTRODUCING ZKEVM TO EXTEND TO THE ETHEREUM ECOSYSTEM


PENDLE FINANCE — DISCOVERING UNEXPLORED TRADING MARKET


RADIANT CAPITAL — REFORMER OF LENDING PROTOCOLS


DESPREAD RESEARCH

Meet our people's insight, our capabilities, our research, and the ever-changing
face of our firm.

Subscribe
Great! Check your inbox and click the link.
Sorry, something went wrong. Please try again.

System Light Dark
Meet our people's insight, our capabilities, our research, and the ever-changing
face of our firm.
©2023 DeSpread Research.
Subscribe
Great! Check your inbox and click the link.
Sorry, something went wrong. Please try again.
English
 * Insights & Analysis
 * Project Reports
 * Blog

Korean
 * 한국어🇰🇷
 * 인사이트 & 분석
 * 프로젝트 리포트
 * 웹3 가이드
 * 블로그

About
 * DeSpread Hub
 * DeSpread Home

Great! You’ve successfully signed up.

Welcome back! You've successfully signed in.

You've successfully subscribed to DeSpread Research.

Your link has expired.

Success! Check your email for magic link to sign-in.

Success! Your billing info has been updated.

Your billing was not updated.