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Chiente and her co-founder Rachel Yu come from traditional finance backgrounds and entered the crypto space for the opportunity to build a better financial system on the most beautiful monetary system humankind has created — Bitcoin.
I hope you enjoy the Stacker Chat and interview transcript that outlines the inspiration and vision for ALEX building a sound financial system on Bitcoin and Stacks.
— Gina Abrams:
Hello, everyone, and welcome to the Builder Series of Stacker Chats, where we connect with the amazing founders building on Stacks. My name is Gina Abrams, and today I'm excited to be joined by Chiente Hsu, founder and CEO of ALEX, the Automated Liquidity Exchange and open-source DeFi protocol. With ALEX, users can lend Bitcoin and earn fixed or variable interest, they can borrow Bitcoin without risk of liquidation, long or short Bitcoin, and much, much more. Previously Chiente has been managing director at Morgan Stanley and Credit Suisse, she is author of Rule Based Investing, and a tenure track professor as well.
Chiente, I'd love to start with your background and hear what inspired the shift from traditional finance into crypto, and how the idea for ALEX came to be.
— Chiente Hsu:
Sure. Hi, Gina, good morning from New York and good day to everybody, wherever you are. It's really a pleasure to be here and thank you for inviting us to this chat. So how did we come to ALEX? My co-founder and I, Rachel, have been good friends for decades. We met on Wall Street and we always wanted to do some projects together.
I started at Wall Street after a three years professorship at Duke. I started at a Wall Street bank called Credit Suisse and I started building the quantitative investment business there, working with great minds. But as soon as I joined, a series of financial crises happened. It started LTCM, the hedge fund that overleveraged. They basically got very, very cheap leverage from all the banks, but none of the banks knew about each other's leverage exposure, and it triggered a financial crisis. Then it was Russia that defaulted, and then you have all the series of crises happening on the financial market, spill over to Main Street as well. And so it made us think about what really went wrong, right?
There are a few reasons why all these financial crises happened. Of course, people can say, "Every time is different. This time is different," but really it is all about number one, information asymmetry. Often investors don't have information, but the risk takers have information and that's number one. Number two is often there's a centralized entity or actor that doesn't behave well, right? So for example, the great financial crisis you think about is a rating agency that they really, in the sense that they are supposed to work for us, raise debt properly, but they actually work with the banks and they rate debt that they shouldn't be rating that high.
It made us think, "Okay, what can we do to make this financial system much more transparent, efficient, in the sense of Pareto optimum like all the economists like to say?". We didn't really have the chance until Stacks developed, Stacks 2.0 launched, that enabled us to raise smart contracts on Stacks, build DeFi on Bitcoin.
Bitcoin is the most beautiful monetary base that I think humankind has developed. It's a beautiful base where we can build a financial system, but in order to build a financial system, we need to create a lot of things. We need to create bonds, CDs, and we need to create derivatives. And to create those things we need smart contracts.
I think Rachel and I have been waiting a long time for this to happen and we were very lucky that at the beginning of the year, Stacks 2.0 rolled out and we were lucky that we got invited to join the Accelerator Program.
We want to build a whole decentralized, truly permissionless, trustless financial service on Bitcoin via Stacks. And I know it sounds like a lot of work, maybe a lot of jargon, but it's very simple, right?
"We want to have a place where people can launch the token. We want to have a place where people can exchange, and we want to have a place where people can receive leverage. That's really the three fundamental parts of the financial world, so that's what ALEX is about."
That's awesome, thank you so much for the overview. I'd love to dive a little bit further and talk a little more about your decision to build on Bitcoin versus other layer one blockchains that are out there and the decision to build on Stacks and this ecosystem. What are some of the factors that drew you to this space?
Rachel and I are very, I would say institutionally, trending. So the first thing we looked at is what is the safest? Because I would like to say that we are not the flashiest founders out there, we might sound boring, but it's because we try to come up with a platform that people put their money in, right? Money management should be boring, it shouldn't be flashy, right? It's not a video game. So we searched for a place where our protocols are the safest and that is Bitcoin, number one. If you look at other chains, you have those side chains, but there are layer two chains, for us Stacks is the most secure place. That's number one from the technical point of view, why we want to build Bitcoin via Stacks.
We also met Muneeb before we joined the Accelerator Program, and I really believe in his vision. It always stuck in my head about this billboard -- instead of don't be evil, we just can't be evil, right? So I think that says a lot about Stacks and Muneeb’s vision.
Where we come from, we can offer a lot to start creating a financial world by starting to build primitives, right? If you build a foundation and primitives well, then the whole ecosystem can build something good on top of it. But if the foundation is kind of rocky, then whatever you build on top, there is a great probability later it's going to crumble. And that's what we currently are seeing in Ethereum and maybe we are going to observe in other chains as well.
So our mission coming to Stacks is that, "Okay, we're going to look at what we don't have in Stacks and we're going to start building the primitives." And as you can see, the primitives are token launchpads, the primitives are a good DEX and the primitives are, for example, those zero coupon bonds, right, that's really the beginning of derivatives. So that's where we are right now, we are building the primitives for the Stacks ecosystem.
Excellent, thank you. You've mentioned that investing in ALEX is similar to investing in an index fund of the Stacks' ecosystem. Can you elaborate on that and how you're working with other projects in this space?
Sure. I know index funds are very boring, right? You are basically just a loan market. Again, I like to say, I don't mind if you call us boring, but we are safe. We are safe for you because we are building the foundations for you, right? So index funds are not as exciting as you hear a hedge fund making 90% this year, but index funds are safe. And why do I say that ALEX is an index fund of the Stacks ecosystem?
Number one, we are the first one where our cohort can come to launch the tokens. We want our cohort to be successful. If they are successful, ALEX is going to be successful, so that's number one. And number two, once our cohort launches a token, they need a good place where their tokens can be changed, so that's ALEX as well.
Furthermore, for other Stacks projects such as MiamiCoin - and we hope that there'll be 200 CityCoins following that (I just love this project!). People can later lend one CityCoin and borrow another CityCoin. If they prefer to vote, for example, San Francisco, instead of Miami, etcetera.
"We want to create this kind of ecosystem for Stacks' native tokens. That's why I say that the success of ALEX is highly dependent on the success of the whole ecosystem. We grow together. And in this crypto world, we build on the giants as well."
Nothing on ALEX that can get us a Nobel Prize. But we very much depend on whoever is ahead of us, building something and we come here and we make some incremental value add, and that's how we grow on top of each other, and it’s the same way that we are going to grow together with our ecosystem.
For example, I want to shout out and not because I'm so biased with them but just because they are the first ones to work with us, for example, SEEK and LAYER, they are two wonderful projects, but they need DeFi, right? Instead of building their own DeFi solutions, they will use ALEX API for their DeFi part. And for example, the very exciting project, Moonray, the beautiful game, you can play the game and then you can earn Bitcoin, right? Rodrigo will need a DeFi as well, so I would like to shout out that. Whatever you end up with Bitcoin, you can put back to ALEX, right, make your Bitcoin work. So we have to hold hands very tight and grow together. And that's why I say that the ALEX is an index fund, which sounds very boring, but is necessary for the whole Stacks ecosystem.
Definitely, I love that vision.
You have this background with the Stacks Accelerator logo, and you're also talking about this cohort of projects that are coming to launch in the next few months, all together. I'd love to hear a little bit more about your experience with this Stacks Accelerator and how that's been, what resources you've received and anything sort of surprising or that stood out in the program?
Oh my God, I can talk for hours about this gang there. Shout out to Grace, Andrea, Alex, Victoria, and Trevor, of course. Before we came to the Stacks Accelerator, we were a little suspicious because Rachel and I, we're not your typical developer co-founder. And we're like, "What? Are we going back to school again?", but it has been amazing. I keep on telling people, this is worse than two years at an MBA program and I know how much a two year MBA costs! From the beginning, we were basically taught how not to fail. The thesis is very simple. This Accelerator makes sure that we all minimize our probability of failure.
For example, what is the number one possible factor of failure for a startup -- funding, right? You don't have enough money. Second is the founders don't get along or you are not sure that your product has the market fit and you need to pivot quickly, et cetera. So it's really very well thought out and gives a mindset of saying, "Okay, don't wander too far away, do these few steps so that again, you cut off the left tail of your success distribution, probability distribution. You cut off the left tail, and then the rest depends on many, many other factors such as market sentiment and other stuff." Scientifically speaking it is very well thought out. That's number one, that's about the program itself.
Number two is about the people there. These five people, I just shouted out, again, I don't know where they live, I don't know their time zone! 24 hours a day, there will always be somebody there continuously checking on you, making sure you do homework, making sure you're not burned-out. It's like you have five people making sure that they want you to succeed. So that's just amazing. And then among the cohorts, you want to have those spillover effects. You want to make sure that everybody isn't in an isolated corner. They create an atmosphere, they create those channels for us to talk to each other, to work with each other.
In the beginning, Rachel and I were like, "What? Are we going to school again? We have laundry to take care of. We have to cook for the kids and we still have to develop ALEX and you want us to go to school?". After two months it's like, "How could they have come so far without the Accelerator Program?"
"I want to use this opportunity to tell everybody that you don't have to be the cookie cutter founder profile right, you can be like us. We are very, very far from the kind of what people think the founder of a crypto should be, but come to join the Accelerator Program to maximize your probability of success."
Wonderful, thank you so much. Now, you've already closed 3 million in funding, and I know that you already have a sizable team, which is incredible to see given you started building earlier this year. I'd love to hear a little bit more about your plans for the next 6 to 12 months and what you're really focusing on in the future.
Sure. So yes, I'm knocking on wood. I'm in the kitchen so I have wood, I'm knocking on it now. We are very, very lucky, thanks to everybody's help. Also, the macro environment is right. I think people understand now suddenly that if not the beginning, but we are in the early stage of an extreme, big, strong, and very pronounced macro trend, and that's crypto, right? This is a disruption in all aspects of society. And we are very lucky to be part of it, disrupting traditional finance. So we got lots of interest, the three million in the very beginning obviously came from the Accelerator's check, then family and friends, but then started really being just VCs, different VCs. There are traditional VCs, want to get early into a startup like us, a different crypto startup like us, but also they are crypto insiders.
We were very careful about how to partner with those VCs. We diversify in terms of region, we diversify in terms of the skillset, because once they are investors, they are a partner. They want us to succeed, so they will work with us. And so far, we have been very lucky that VCs have been really helping us to grow. So that's where we are right now in terms of just three million, and then we are going to close the seed round with a valuation. So currently we are talking to a few industry leader VCs that who actually know Stacks well to work with them, try to close this round. Once we have enough cash in the coffer, the milestone of ALEX will be Testnet at the end of September, invitation only. And then Mainnet launches, end of November. I'm joking to all the team members that we're going to have cold turkey this year because Mainnet launches after November, after the thanksgiving.
Then the six to eight months is really laser focused on having the best product, fulfilling our promises, which we already have everything in place in the sense of the backend. Rachel is leading a fantastic team in terms of UI, UX. We want to give people the superb experience of using ALEX. So that would be the end of the year and early next year. So that's a plan, really these few milestones.
We are not like the one who have from A to Z every single step map out, but we have A to G map out, right? So we know those milestones, and then Z is our vision. And we would like to make sure that in every step in every milestone, we wow, we woo our investors and our partners. And I think so far, we have done that when they go into our Github, when they look at what we have developed, when they look at our UI, UX, when they look at the team, as you said, I think they are with us. They are definitely holding our hands very tight and they believe in our vision.
In terms of the team, I also want to say a few words. I'm the one who's talking to you right now, I'm the face of ALEX, but really behind this face, there is huge human capital, right? And you saw my tweet, lots of people, these guys, they like to say, "Oh, this is a bubble. That's a bubble." By definition, you only know it's a bubble after it bursts, right? So how can you call it a bubble right now? In no time, in the history of humankind, have you had a sector that grows with so much human capital, that it becomes a bubble. It just has never happened before.
The team is amazing behind ALEX, we have the best financial engineers. We have the best smart contract developers and an extremely senior UI, UX team. But above all, we have a team of advisors, right? They come and they help like Raoul, Martin, et cetera, and shout out to Chang as well. So that's how we form this partnership among us, ALEX, is that everybody believes in one dream, one vision and is a one team.
"Although we work in different geographical areas of the world, we all believe in one vision: that we want to build the first and best one-stop DeFi on Bitcoin via Stacks. So really shout out to the team."
Incredible. When it comes to DeFi, a lot of early adoption has been in early experiments and other chains. And it's been a story that's been a little bit longer to take off within the Bitcoin world. I'm curious from investors or potential users, what are any anecdotes or sort of points of interest that you might be able to share?
Because of Stacks, now Bitcoin is not just a very linear kind of store of value anymore. I think the reason why Ethereum exists is because we couldn't write smart contracts on Bitcoin. But Stacks, it's like a spaceship that enables takeoff, to build a true financial DeFi on Bitcoin. And this gives us a really beautiful gateway to traditional finance.
If you look at pension funds, endowments, what do they hold? They hold Bitcoin, right? Very few hold Ethereum. And not to say that Ethereum is bad or good, Ethereum for me, my very humble opinion is exciting tech, crypto projects that are happening on Ethereum. But really if you think about a store of value as money, that's Bitcoin.
Now we have smart contracts that enables us to create the whole financial world on Bitcoin. The whole gateway is open to traditional finance. And that's what I see, not just a point of interest, I would say it's a sea of interest now. If you think about being a treasurer, right, you hold Bitcoin. According to current accounting law, when it goes up, you can't mark up but when it goes down, you have to mark down. I don't want to be Tesla’s treasurer, right, with volatility like this. But then you have ALEX, if you come to ALEX it helps you to minimize your downside risk via our collateral rebalancing techniques.
So really again, it's a whole sea of possibility now open suddenly because of Stacks, we have that gateway to this traditional finance. And they're not just holding Bitcoin like gold, like a rock anymore. So that's how I see it.
People don't see ALEX as yet another DeFi approach similar to Ethereum. They see ALEX as something that is going to bridge the CeFi, DeFi and traditional Fi.
"And I always like to say at the end of day, as a human being, as a consumer, as a market participant, really does it matter DeFi, CeFi, TFi? We want the best Fi. And we hope that with Stacks, we will have the best DeFi as a part of the service for this community."
Absolutely. Now, there's a lot of different folks who can engage with ALEX, and so I'd be curious to hear a little bit more about who you might anticipate onboarding sort of in the very early days of ALEX's launch and also what you're looking forward to with the Testnet and if there's any ways for folks in the community to get involved there.
Yeah, I would love that. So if you could come to our website, alexgo.io, to sign up and it's invitation only. You can please come to test out our Testnet, so that's number one. Testnet will be at the end of September.
Early stage, who are we catering our service too, right? I would say Stacks communities. This is your first one-stop DeFi, come to try to, for example, lend your Stacks, lend your MiamiCoin, try to borrow stablecoin, try to do something with your stablecoin or vice versa. We would like to offer banking or financial services to the Stacks community. And the next obviously is the whole Bitcoin community. We would like to onboard them and here, Stacks is really creating at the moment, developing nonstop, new functionality that ALEX will have to use, right?
So for example, onboarding Bitcoin, onboarding stablecoins, obviously Arkadiko is already working, we're very close together and also cross chain capabilities, microblocks, et cetera. We are all very, very, very excited about all this new development that we're going to hold hands with Stacks closely to basically develop more and more functionalities. The second stage is that we would love to engage more with the Bitcoin community, Bitcoin holders.
But again, ultimately the vision is to offer a true trustless, permissionless DeFi to the fiat holders. That's our dream. And then we can talk a little bit more in the next chat, there's a lot going on there because just given how the traditional financial institution, where they are going in terms of over bloated, risk control, middle office, et cetera. The traditional financial world really hasn't changed that much since the centuries. This is the time, right? Together, we can disrupt, but disrupt in a positive way, make it more efficient, and come up with banking services for not just banks, but also unbanked. I think again, we are in the beginning of a big movement and everybody in the Stacks community holds hands tight, we are going to make an impact.
We're going to make it and make an impact! Great, well, for folks interested in this space, what might be your words of wisdom to anyone who's interested in building and exploring?
We will have our API, you can reach, for example, if you want to build trading strategy, new farming strategies, please come and have a look! You can use our protocol, use our pools to build something fantastic on it.
We all build on giants, shout out to Uniswap, shout out to Aave, Compound, right? Thank you for all this fantastic innovation. We build on you, but we also bring something to the community that we have our own innovation to contribute. We have white papers, I know some people read the AMM one and really liked it because we generalized this. So again, come, we will help you. We build things together and we are completely open source. An audit is happening in these next two weeks. We are completely open, and you can see everything about us and our GitHub and our docs. We welcome you to come to build on us and so that we can grow exponentially together.
Great. So where should folks sort of follow along on updates for ALEX? We can definitely throw some links below, but it sounds like there's also going to be more exciting chats and presentations about what's possible with ALEX. So what's the best place for folks to follow along?
Right. So our website, the landing page, that's alexgo.io. And also if you want to see our evolution, that’s docs.alexgo.io. You could also find our Github link there. We will host together with Patrick some Twitter AMAs, also in China we're hosting some Twitter AMA as well. And we are getting a little bit more up to speed with Twitter, with LinkedIn. So a lot of announcements will happen there as well.
Terrific. Any other closing thoughts, Chiente? It's been so wonderful having you on the show and hearing about ALEX - I’m so excited!
Yeah, I'm happy. Yes, the thought is the following, Stacks is truly decentralized, right? We are not like other chains where someone is on top saying, "Okay, you do this, you do that, you do that."
"We are truly decentralized, but the human capital in this community is mind blowing. Together, we really can achieve something great. Hold hands tight, work together, build on top of each other and help each other, then I think the world looks very bright for us as a Stacks community."
Absolutely. Well, great. Thank you so much, Chiente. We'll have a link also to your Twitter where everyone should follow you as well and make sure that they're up to date on all developments, ALEX, and also wanted to give a little shout out to diamondj.btc on Twitter, who asked some amazing questions!
Oh my God, wow. He even knew about the DEX already!
Incredible. We'll continue to share updates on ALEX and we'll continue to amplify the news and folks should look out and sign up for ALEX Testnet participation, which will be coming at the end of September. Thanks everyone for tuning in. Please subscribe to the Hiro YouTube channel for more updates like this. Thank you so much!
Thank you, Gina. Thank you, everybody. Bye.