Can AlphaGrowth Fix Cardano DeFi?

All right, guys, I’ve got this really awesome interview with Alpha Growth here, and apparently they’re going to come into the Kadana ecosystem to fix a lot of our DeFi problems. And I think a lot of us have an idea of what our problems are, but having a third party come in to tell us what they really are is kind of useful. And they’ve got a treasury proposal coming up here. It’s a big ask.

And I think we have to dig into the details here of their background, what they can deliver and what our problems actually are before we can release those funds. I have Brian and Eric joining me from the Alpha Growth team here to talk through all of these things. Gentlemen, welcome to the podcast. Good morning, Peter.

Happy to be here. Thanks for having us on. All right, guys. First off, a lot of the people in the Kadana community have absolutely no idea who you guys are.

We’ve just been teased through these various posts, and we want to know who we’re dealing with here. We are going to vote on this treasury proposal for Kadana Prime, which is from what I understand what it’s called. We got to know who we’re voting on here. So could we get a really good overview of what you guys do in the DeFi space and why should we be talking to you right now?

So Alpha Growth, we’ve been around for six years since the original DeFi summer. The net-net is that chains, we have like a chains and ecosystems. We have a very good, strong thesis on how they should kind of look at their ecosystem. There’s a lot of chains that do a lot of different things.

Cardano in particular has an amazing community, longstanding. However, just until recently, some of the key infrastructure pieces weren’t available. So some of the leadership in the Pentad brought Circle, USDCX to play, Pith and Layer Zero and Bridging Technology. When you kind of bring those pieces of infrastructure in, it starts to create these unlocks.

So at our core thesis, we believe that there’s kind of three different ways that chains and ecosystems survive. One is kind of looking at the chain as a holistic, like hedge fund ecosystem, like a venture capital firm that has to invest in very particular places and then start to use their balance sheet as leverage to earn yield on its own treasury. But more importantly, everybody that holds ADA and everybody in the Cardano ecosystem can start to earn yield products from organic yield and the volatility of the price. And so we’ve been doing this for about six years.

We’ve helped out, probably our best deal to date was helping out Compound, brought over 850 million of TVL to Compound. We’ve helped out Uniswap, we’ve helped out Kava, Near, Saga, Aurora, a couple other protocols in chains as well. In the DeFi ecosystem, we’ve probably given you a grant or an incentive spend. So I think we’re coming up at like 60 or $70 million of incentives and grants across like 200 protocols now.

Wow. Very B2B. Right. Gotcha.

Big, big numbers indeed. Now, you mentioned some of those infrastructure things that we needed, such as USDC, PIF, and whatnot that have come through the Pentad recently. Did you guys have anything to do with those particular protocols being brought over to Cardano? Zero.

Zero. Okay. Absolutely none. It’s just interesting to understand like why those particular ones were chosen.

I thought it may have had some reason to be better connected through, you know, what you guys do. They’re great choices. Yeah, they’re great choices. I think…

Go ahead. They are great choices. It’s actually through some of those partners that we were introduced to some of the teams behind Cardano. They recommended us, which is humbling and nice, but I mean, we’re not the only capable people here.

There are a lot of capable people in Cardano leadership currently, and they understand that there’s missing infrastructure. So they’re trying to cross off a checklist like, hey, we do need a bridge. Hey, we do need a, you know, canonical on-off ramp stable, and we do need some kind of oracles to get advanced DeFi primitives, you know, functional. And so while they’re going through the checklist, which is great, like we would have loved to have been there to help advise and show the pros and cons of different options.

I’m sure they were doing that independently. But part of those relations are what have, you know, introduced them to us and, you know, they went through an RFP with eight or nine different companies and they did choose us to move forward and help them continue to advise on continuing the development of the DeFi ecosystem. But we’re not starting from scratch, which is awesome. All right.

Okay. That’s good to hear. Now, Brian, you mentioned that 850 or so million for Compound bringing that over to their protocol. What was the strategies?

Like, how did you do that? You just caught up a couple of mates and said, Hey, can you put some liquidity in here? Like, what, how do you do that? Just two friends.

I called and they, you know, they put a look up. You’ve got good friends. Yeah. No, it’s, you know, straight to the jugular.

I think that there’s a couple of different plays, but the DeFi mullet is back, right? So there’s a couple of integrations that were a majority of the TVL came from, maybe about like 40% of it. And, and we’ll, we’ll do the same similar, like campaign for and tactics for the Cardano ecosystem. I just really simply put there’s, you know, there’s more ADA across centralized exchanges, custodians in the world than there is in DeFi, obviously.

Right. And so how do you create the structure products and lending facilities and DeFi style mechanisms that you can kind of just plug into a centralized exchange into CeFi and then have the ADA go to work within the DeFi ecosystem. So that was, that was a very large structured play. A great example of this is a Coinbase’s investment into Morpho.

So most of the TVL that comes from Morpho comes from Coinbase earned product. And that earned product accounts for like more than half of their TVL within the Morpho ecosystem. Right. Yeah.

I had no idea that those mechanisms were working in the background for Coinbase. So when you, when you invest on Coinbase earn on Coinbase, which is like, you know, one of the largest centralized exchanges, you effectively are investing in Morpho. And so even if the users don’t see it, it’s DeFi in the back, CeFi in the front. Coinbase obviously, obviously earned some nice, you know, nice tasty commissions on that as well.

So the, the users aren’t getting the best yield per se within the DeFi ecosystem, but they are getting outsized yields than they would normally get in return. So in a very simplistic view, if we just do like one or two things, it’s that. But now we have to build all of the structured products, all the DeFi primitives that work in coordination. So, you know, it doesn’t matter if you build the fastest car in the world, you still need a driver.

And that’s kind of what we’re here to do. Like so you bring in Circle, you bring in, you know, Pith, later zeros coming, those types of things. It’s like, if you build it, they will come sort of. You still need to campaign.

You still need to actualize. You still need to like rev the engine and have drivers to drive the action in TVL in a particular way. Okay. Gotcha.

So how is this going to work for Cardano? What’s your plan here? I read through the Cardano Prime and you’ve got like a three phase process to get us to this point. Can you talk us through this?

What are you guys going to do for us? Yeah. You know, end goal is have at least minimally viable, no limiting agent DeFi where every possible vertical or at least every necessary vertical is covered so that we could get, you know, better USP based products. We start with phase one, you know, a deep, deep audit for all the infrastructure, all the apps.

We have a very good idea of where it needs to be. We need to get a completely holistic idea of where things are so that then we could come with an improvement plan. If we’ve got apps in the right verticals that aren’t quite at a point where they’re going to be interoperable enough, not quite where they’re going to facilitate velocity well enough to grow organic APR, then we’re going to give them an improvement plan and ideally a grant to go with it. So like, Hey, here’s what we need you guys to build.

Here’s why, here’s how, here’s some funding for it. You know, a big chunk of this proposal is for ecosystem grants. And if we aren’t convinced or the pentad or operating group or overseers in Cardano don’t agree that maybe in the ecosystem app is capable of, of be getting the trust that institutional LPs are going to need, then we’ll talk to some of the other bigger players in elsewhere, DeFi and give them a grant to come move into the Cardano ecosystem, rebuilding UTXO and just make sure we have all the verticals covered. So big, big, big audit on our side, as well as action plan on how to get from where we are to where we need to be.

Then phase two is doing the building, handholding all the different teams, working on them with integrations, make sure their bridges are proper. If we’re working with midnight to offer privacy, make sure those integrations are going well. It’s a lot of BD handholding, making sure that everybody’s on the same page has a source of truth to go to go to. And then finally, once we have everything built to a point and audited and at a point where it’s ready to showcase to the world, then it’s coming forward with a marketing spend with an incentive spend and bootstrapping TVL, getting tokens launched on chain, getting like native asset issuance and then winning trade routes and just growing, growing TVL, growing velocity.

This is a lot of work, guys. This is seriously a lot of work for the DeFi protocols and for yourselves to put in the groundwork and the infrastructure that’s needed to make this all happen. What is the timeframe of this? What are we going to expect in like six months time into the year?

People want numbers go up now, we’re hurting in this bear market to see alpha growth come in and actually change things around this year would be absolutely amazing. What are we looking at? We’re looking at starting the TVL bootstrap, starting like the rollout of the final version of first final version of Cardano DeFi around the end of the year. And that that has assumptions baked in that people can build in UTXO fast enough that we can work with all the parties fast enough.

So far, we’ve had a very pleasant experience dealing with the Pentad and other operating groups inside of Cardano ecosystem. So there are unknown unknowns, but we do have experience doing this kind of stuff. And we do think that we can get through our audit in the first month or two that we could get through the builds and, you know, three, four expedited months. And then by that time, we’re ready to start rolling out with distribution partners and pushing through, you know, liquid funds and deployment funds and distribution partners and start, you know, making Cardano DeFi great again.

Yeah, I think the unknown unknown is the UTXO. We can get it down to three months. Our goal for the six months before the end of the year, there’s probably four or five protocols that we need to get up and running and then multiple integrations in between those protocols. So they work smoothly together.

That’s that’s a protocol is like job is to is to, you know, in DeFi, the number one thing a protocol can do is basically selling leverage. So first, you have to advertise the leverage, you have to understand the leverage, and then it has to like work in coordination, right? So you can’t you can’t build a money market up to a billion dollars if you only have like 10 million dollars of DEX liquidity. It’s just too risky.

Right. So you have to build these things in coordination. You can’t if you don’t have like a CDP that basically earns off the velocity of the ADA price, then you effectively are leaving money on the table. You’re leaving TV all the table like user transactions utilization.

We talked to one chain that we were doing an analysis with about 80 percent of the transactions of the chain. And this is a very popular chain comes from just arbitrage between the price movement because they have such a large amount of TVL. So about 80 percent of their revenue for the chain essentially comes from having a massive set of TVL and arbitrage market makers coming on from centralized exchanges to to to rebalance the DEX, to rebalance the CDPs, to rebalance the money markets. So if we set it up properly, there’s just this reoccurring revenue source from from now and until forever.

Sounds good. Sounds like a decent plan. I like where everything is going now, Brian. You also mentioned marketing a little bit earlier as well.

And like you said, also, a lot of these things have got to work in tandem. What’s the plan for this? How are you going to hit the marketing for DeFi? I feel like sometimes I feel like DeFi has had its time.

You know, it’s it’s we’ve had DeFi summer. We didn’t see like a second resurgence of it. Retail is kind of disappearing from the field at the moment and being replaced by institutional investors. What is the marketing landscape going to look like for this?

Yeah. So basically activations. I could go through like the standard list of things, you know, videos, podcasts, KOLs. They still work.

We do some investments and I talked to a portfolio company yesterday and, you know, they brought in like over like 20 million TVL on a $40,000 spend. Okay. All right. That’s impressive.

Yeah. KOLs. Will that be sticky? I don’t think so.

So we have this we have this challenge with mercenary capital in in crypto. And so the different activations, what you’re what you’re really trying to do is like limit every test through all of our marketing spend. So my background is in performance marketing. If you know like ROAS and, you know, these different types of terms, like go straight to the jugular.

But effectively, every spend, every KOL, every channel has opportunity cost and a limitation. So we know that a certain partner is good for about 10 million TVL. We know another partner and it doesn’t matter if we spend, you know, $100,000 or $300,000. They’re pretty good for 10 million TVL.

The next partner might be good for 20. The next one might be for 50. So they always have these opportunity costs and limitations. And you know, we have the experience and we know how to spend.

And basically, one of the things that we do is like we cut off the spend. So you put in a spend for a month or two, you cut it off, you see the retention rate, and then you do it again. So then you understand kind of like how much is going to get activated and how much is going to be retained. It’s not like just a consistent spend, spend, spend, right?

So yeah, it’s just performance marketing, channel testing. And there’s probably like 80 channels that or 80 campaigns that we can run. There’s three or four that I know are going to work and just like from historics and then going to be some Cardano specific places that we need to go to. So, you know, we’re looking in Japan for particular activation campaigns as well because there’s a large, large community.

So that’ll be new for us. We haven’t done a Japan specific campaign before, but so we’ll have to learn and we’ll make some mistakes, but we’ll iterate to the right conclusion on, you know, how to spend efficiently. Well, I think some regulations are changing there at the moment, so it might be more attractive to pull in some of those Japanese investors and ADA holders. So fingers, fingers crossed, it might be a really good play.

I was there for a month last year and got really deep into the crypto laws and yeah, they’re, they’re pretty harsh, like something like 50% tax rate right now on, on crypto. And then there was like very, very, there was like one bank in the entire country that you could interact with blockchain and cryptocurrency. So they kind of have like a lockdown on it. So that’ll be an interesting one.

Good luck with it. Good luck with it. There, there, the Japanese yen is fluctuating a lot. I’ve heard they’re spending a lot of U.S.

treasuries to prop it up. So it’s, which is, I don’t know where it’s going to go, which is really, really good for some of the stuff that we’re building in DeFi. So if in a best case scenario, volatility is our friend, right? Volatility is the, is the mechanism that pumps and makes APR within DeFi.

The higher the APR, the less we have to spend. So that like getting a, like a Japanese yen stable coin on, on the Cardano ecosystem should be one of the integrations that we look for, for, especially for on-ramps and off-ramps. Just having like, having like Forex, you know, counterparty between the USDCX and the Japanese yen token organically would, would generate a lot of yield on chain. Yeah.

And with things like CDPs or money markets, doing carry trades off of ADA directly. I mean, the Japanese are very familiar with carry trades with the, you know, the yen carry trade. So might be able to shape it in ways they’re more comfortable and familiar. Wow, guys.

All right. This is going to be very interesting. So I’m, I’m really excited about you guys coming on board and, you know, playing around with a lot of this stuff. The community is going to ask about KPIs, transparency for reporting and all that.

That’s, that’s all given when it’s especially coming from treasury funds. What are you guys doing in terms of reporting? What KPIs are you going to assess? Like what, what type of transparency will we see?

Or we just give our ADA away and not get any of that type of reporting back? We are a third party, you know, at least previously unbiased party coming in here to help steward an already promising, you know, really cool ecosystem. We are not coming in as a hostile takeover. We’re not coming in and saying, you guys don’t know what you’re doing and we’re the only ones who do.

We were, you know, headhunted, tapped on the shoulder, if you will, by a lot of the Cardano teams that, that chose us. We know our position. We’ve worked with DAOs a ton. We’re not asking to store the money.

We’re not asking to hold the funds. Instead, we’re working to set up an operating group of, you know, Pentad and community members who are trusted by the community to oversee everything, to hold the money, to give us distributions and disbursements, according to the prop. You know, after three, four months, if you guys aren’t happy with the direction things are going, you can pull back like 75% or more of it of whatever spends haven’t been done yet. So yeah, transparency is our friend.

We wouldn’t have gotten this far in DeFi and crypto working with a lot of biggest names if we were stealing, if we were, you know, acting in some way, shape or form shady. So we, you know, we run payroll, we run our businesses on chain. We’re used to that. I mean, I’m a privacy maxi.

I love the idea of midnight and offering that to applications, but ourselves, yeah, we’ll do quarterly reports. I mean, the milestones we have in place in the prop right now are like to move on from one phase to the other. We need some kind of like public facing document and like proof of work, proof of direction for not just the operating group, but for the entire community. We’re down to come on your show as many times as you want and answer tough questions and take tough criticism and feedback, because that’s also what begets a lot of the best ideas.

And the goal from this isn’t to have adequate DeFi. It’s to have, you know, a viable high enough flowing DeFi to beget the future applications that are going to show off the USP of UTXO of midnight of, you know, more of the, you know, what everyone’s wanted from Cardano that you knew it was only possible in Cardano that we think is being held back from the lack of addressable market that we can fix. So yeah, we’re transparency is our friend. You know, I liked working in environments where there are cameras everywhere because that protects your job instead of, you know, like, oh, what’s that guy doing?

It’s like, no, no, no. If somebody attacks me, you can go to the camera and prove that I am doing my job. That’s how I feel about operating on chain. I think the first conversation we had was, can you bring a billion dollars of TVL to Cardano?

And it was like, it was like gulp. OK, so we were like, let’s let’s roll it back and let’s get, you know, the good baseline and a good foundation. And I think over, you know, the trajectory that we plan to go is like over a course of two years. I think that’s a tenable.

Right. But it’s not we’re not going to put a two year plan in and ask for, you know, enough funds to support it. It’s, you know, try before you buy. This is a this is this is a large investment, but it’s also something that’s kind of evergreen.

And so if we hit our KPIs, when we hit our KPIs, the first KPIs like, great, what do you think you guys can do in six to nine months? And we have 12 months to do it, a little bit of wiggle room. But then the number that we came up with that we were confident with was 200 million TVL as as the target in a six to nine month. And then we have like three months of wiggle room.

And so within that, then there would be an even greater plan to double down and triple down. You know, some of the the USP in Cardano is very unique, but there’s also like these games within the crypto ecosystem that are very popular. So right now, the most of the retail activity is within prediction markets and perpetuals. Right.

But that’s that’s the narrative to share today. Right. There’s there’s inklings of like AI compute on chain that are starting to like become part of the narrative, like within this AI revolution. So there’s there’s there’s basic things.

There’s things that we can look at from a what is in vogue right now. And then there’s things that will happen within the next 12 months that that we’ll be able to capture the narrative. Really interesting, guys. I’m I’m so excited to hear all these things that you guys are telling me and that chasing that narrative thing.

I’ve got like a five part series around AI and crypto coming up next week, so I’m pretty excited about that as well. So definitely a lot of good stuff happening there. But guys, we’ve covered quite a lot here and I’m sure our listeners will have a lot of questions. So they’ll be leaving comments down below.

Can I feed them to you guys for a follow up interview? Yep. Great. Fantastic.

So so everyone remember, leave questions down below. Fill these guys. We want answers for everything that we ask here. But in regards to just wrapping up this interview, what else do we need to know from this point?

I’ll point people to the Cardano Prime proposal. But what are some highlights? What’s really important that the listeners here need to take away with them tonight? I’m going to say that I’ve seen some comments and feedback about like, hey, we should just take all of this money and use it to incentivize TVL.

The kind of the reason behind the pricing in this ask is we’re saying that with the small percentage of this proposal that goes towards direct incentives, we should end up getting the same TVL increase as if you guys just took this entire amount and yeeted it into distribution partners. And the number behind that, the advanced that I’ll say is like kind of the market average for for TVL increase per annualized incentive spend is 14 to one. And historically, we’ve been around 40 to 42 to one. So we get about three X returns on TVL and 12 X returns on like how sticky it is compared to industry average.

And so the goal of this, you know, first two phases is really doing like a one time spend a one time build towards getting things so that you don’t have to max spend for every TVL you bring in and keep spending really hard or else it doesn’t get sticky. It’s investing in the infrastructure so that it ends up significantly cheaper. And we should be able to, you know, prove that during this proposal and especially once we get to the incentivized the incentive spend. So anyone can say it takes money to make money.

I hate that phrase because people, you know, say that right before they just waste a whole bunch of money. We’re trying to show that with metrics that like literally you do this spend and now the four million that you spend towards incentives or so is going to be worth 12 million incentive spends. But then that’s going to continue for any incentives you do in the future, any activations you do in future applications. So we want to really, really show you guys like, no, you are spending money in a way that saves you a ton of money.

That’s really cool. Okay, guys, thank you so much for joining me on this podcast and taking us through the proposal, what you guys have been doing, your history, your reputation, and what you’re going to deliver for the Cardano ecosystem. I’m looking forward to a follow up interview to see how things are progressing and to answer community questions, etc. But like I said, thank you so much for joining me on the podcast.

Thank you for having us on, Peter. Pleasure. Awesome. And for you guys watching, all links and references down below in the show notes.

Don’t forget to hit that like, subscribe on your way out. And I’ll see you guys all in the next video.