After much anticipation, we are starting to see real use cases for blockchain as it moves from abstract theoretical concepts to practical applications that have the potential to change the standard order. The promise to decentralize finance by decoupling the transactions and activities of old banks to the public via blockchain is driving innovation towards a more efficient, inclusive system, and not riddled with predatory fees. Algofi builds a fast and low cost decentralized lending market on the blockchain using the Algorand blockchain. The company, founded by two colleagues at Citadel, believes their platform will be able to offer transaction fees of less than $ 0.01, compared to $ 15 for other vendors. Crypto depositors can earn high yield rates on their funds while borrowers can easily access funds with competitive rates for their business needs. Algofi plans to launch its mainnet lending and stablecoin protocol later this month and introduce new banking features next year as it prepares to become a fully decentralized crypto-native digital bank. .
AisleWatch met the co-founder of Algofi John clarke to learn more about decentralized finance and companies like Algofi are leading a catapultic change that will redefine finance as we know it, the company’s strategic plans, the emergence of Brooklyn as an enclave for Blockchain innovation , the recent corporate funding cycle, and many more.
Who were your investors and how much did you raise?
Algofi has raised $ 2.8 million in seed funding. Union Square Ventures, Arrington Capital, and VC pillar led the round, with the participation of Y Combinator, Formulating Ventures, and Shines VC.
Tell us about the product or service offered by Algofi.
Algofi is building the first native crypto bank powered by decentralized finance. Algofi will launch its lending and stablecoin protocol in mid-December. Through Algofi, users can lend cryptocurrency, earn interest on their deposits, and borrow to facilitate complex trading activities. Additionally, Algofi builds flat rails to allow users to transfer value to and from the Algorand grid seamlessly. In the long term, Algofi strives to bridge the gap between centralized and decentralized financial worlds.
What inspired the launch of Algofi?
My co-founder Owen and I have been fascinated with cryptocurrencies since 2014. In 2020 our interests were rekindled when decentralized financial applications opened up exciting business opportunities. We were studying DeFi markets in 2020 and found huge inefficiencies in part due to a great lack of financial primitives (lending, borrowing, trading). Ultimately, I left the hedge fund space to explore new opportunities. Owen and I reconnected in 2021 and started imagining things to build in DeFi. We presented to Y Combinator our vision that DeFi is currently inaccessible to the majority of crypto holders, which led us to go through the YC Summer 2021 cohort. We then turned to Algorand, where we thought we could add a Considerable value given our experience in financial markets and our passion for building the new financial system.
How is Algofi different?
Decentralized lending opens the door to the new financial system, but one of the obstacles for participants has been high transaction costs and slow networks. Because Algofi is built on Algorand, we can offer transactions for less than $ 0.01, compared to $ 15 or more on other networks. In the long run, we can be sure that our protocol will evolve with the increasing number of transactions as retail and institutional communities embrace DeFi. Additionally, the Algofi protocol supports a native stablecoin, which no other lending protocol currently has. After reaching a critical mass of DeFi services, we will have built what is a feature of a crypto-native institution powered by the new financial system instead of centralized marketplaces.
What is Algofi’s target market and what is its size?
We are targeting the decentralized financial market which currently has just over $ 100 billion in total locked-in value (TVL). In other words, there is roughly $ 100 billion of crypto value in trading, lending, and yield farming smart contracts on major networks. In the medium term, we see the majority of retail cryptocurrency holders currently not in DeFi entering the space as ramps and user experiences improve. We also believe that as enterprise DeFi tools improve, large financial institutions will enter the space to take advantage of attractive returns and business opportunities. At this point, the TVL of the DeFi market could reach trillions. In the long run, we believe DeFi has a good chance of completely disrupting the financial system and reaching massive market size.
What are your post-COVID office plans?
We are currently working remotely but are planning to have a post-COVID office. We’ve seen a number of DeFi startups sprouting up in the Brooklyn area. NY has a strong and growing crypto ecosystem.
How did the funding process go?
The fundraising process was intense. While YC startups are advised to wait until Demo Day to get started with fundraising, the reality is that investors were keen to talk almost from the launch of the bundle. When we presented our idea to build the new financial system on Algorand to investors, some were dismissive. Back then (and even to this day), building on Algorand instead of other L1s was considered a gamble against the grain. It didn’t matter to us, however; after considering our options, we concluded that Algorand had by far the best combination of technology, community and credibility and that it was being overlooked. Ultimately, we found investors who believed in DeFi and our belief that we need a scalable network like Algorand to support the new financial system.
What are the biggest challenges you have encountered when raising capital?
The biggest challenge was the lack of awareness of DeFi and, in particular, Algorand’s blockchain. A lot has happened since we started fundraising that sparked interest in Algorand, but at the time we were against building there. We were convinced of what we were building because the first DeFi community responded positively to our launch on the testnet, with over ten thousand users loaning on Algofi. Now investors are embracing DeFi and in particular the Algorand ecosystem and there is great potential for the next few years.
The biggest challenge was the lack of awareness of DeFi and, in particular, Algorand’s blockchain. A lot has happened since we started fundraising that sparked interest in Algorand, but at the time we were against building there. We were convinced of what we were building because the first DeFi community responded positively to our launch on the testnet, with over ten thousand users loaning on Algofi. Now, investors are embracing DeFi and in particular the Algorand ecosystem and there is great potential for the next few years.
What factors about your business caused your investors to write the check?
First, investors were intrigued by Algofi’s long-term goal of being the first crypto-native bank to bridge the divide between centralized and decentralized finance.
Second, investors have found our experience compelling. Owen and I met while working at Citadel, a hedge fund and financial services company. I graduated from MIT and Owen has a doctorate in physics.
Third, the progress that Algofi has made in participating in Y Combinator has been helpful.
What are the milestones you plan to achieve over the next six months?
The next big step is the public launch of Algofi in December. Over the next six months, we also plan to launch an entry and exit ramp and governance protocol.
What advice can you give to companies in New York that don’t have a new injection of capital in the bank?
My main advice is to find conviction in what you are building. For us, we found early on a strong community in Algorand who are excited about DeFi and what we are building. It made the decision to build there much simpler. Even when some investors disagreed, our belief that the DeFi community wants what we build resonated strongly with us. So, in simple terms, find ways to convince yourself that what you are building is of value.
Where do you see the business going now in the short term?
We have hired two strong engineers over the past few months and recently a product driven builder. As we tackle more projects on the path to achieving our vision, we will likely hire more in 2022. Additionally, we will continue to build and support strong products in the DeFi space.
What is your favorite open-air restaurant in New York
I don’t have a favorite but I like Dudley’s in the LES.