I recently spoke with the Co-founder of Alongside, Austin Diamond, about the backstory behind the company and the benefits of investing in a crypto market index. Austin shares his passion for finance and how it led him to create Alongside, which is designed to offer exposure to the entire cryptoasset market with a ERC-20 Token. He also discusses the potential impact of index products on the cryptoasset market and how they can change the way retail investors get exposure to markets.
Alongside recently raised $11 million from a seed round led by a16z Crypto with participation from Coinbase Ventures, Franklin Templeton, and more.
Thank you for joining us today. To begin, could you share with us how you came up with the idea for Alongside and the backstory behind it?
Alongside comes full circle and was over a decade in the making for me (Austin)- I was an incredibly weird kid that was obsessed with finance as a teenager. I got really lucky and had an opportunity to work (read: fetch coffee) at a global investment bank with a group that was managing a portfolio of equity index funds. It was there I learned the open secret that is indexing- despite hogging the CNBC airwaves and charging customers insane fees, the overwhelming majority of active managers don’t beat a simple index that tracks the market.
I realized pretty early on I didn't want to work in finance and later spent five years working in tech on marketplaces, most recently with a company called Omni where I met my co-founders Jun and Gauthier (Rai would join just after), which was later acqui-hired by Coinbase.
Rai worked on Ethereum as a Core Dev for three years and we've followed crypto markets since 2016-ish- seeing everything evolve from theory to working application layer products in 2020 made us want to get off the sidelines. We also realized we’re not smart enough to pick individual winners, hence what we're building at Alongside.
What is the potential impact of index products on the cryptoasset market?
Index products secure tens of trillions in equity markets and changed the way retail investors get exposure to markets- they’ve saved retail investors tens of billions in fees, and lowered the barrier to entry such that more people have ownership in the stock market. We think the same dynamic can play out in cryptoasset markets.
How would you describe your work to someone who is completely unfamiliar with Alongside, and also to someone who is familiar with it?
To someone who is completely unfamiliar, I would describe it as buying the entire crypto market with just one token. To someone who is familiar with the industry, I would describe it as a broad-based index that offers exposure to the entire cryptoasset market with a single asset.
Where can you invest and get broad exposure to crypto currently? Any insights into the current TAM among these competitors?
The average investor has largely not been able to get indexed exposure to cryptoassets- what’s available on traditional exchange venues are products like BITQ that track crypto stocks, not coins. We don’t believe the best way to get exposure to the space is via a bundle of dodgy bitcoin mining stocks or centralized exchanges. Others are available via private placement to accredited investors and generally aren’t redeemable or liquid (so they trade at wild discounts or premiums).
For those more familiar with DeFi, we’re fans of on-chain products like those from Index Coop or Indexed Finance, but they can generally only give you exposure to assets in the Ethereum ecosystem, so their products are largely thematic and get you exposure to categories vs. the entire market.
How do you determine which cryptoassets are included?
One of the hidden secrets in markets is that the most esteemed professional investors don’t actually know better than the market. We don’t either. Our core product gives holders exposure to the top 25 cryptoassets (ex. stablecoins/securities) by circulating market cap which historically speaking has tracked the total market cap of the category with ~97% tracking efficiency- we don’t try to put our thumbs on the scale.
Why are coins like DOGE and SHIBA included?
DOGE and SHIB are some of the highest returning assets of all time, and one reason we’re so bullish on indexing is because no reasonable person would have predicted that in a million years. Our core thesis is that we’re not in a position to try to pick winners and losers. If history is any indication, you’re better off “buying the market” vs trying to predict which assets will drive returns. With time, we expect assets like DOGE and SHIB to become a smaller portion of the index as more high quality assets emerge and grow to have large market caps.
With the markets falling and a recession likely on the way, is now a good time to attempt to level the playing field with a crypto market index? Are there negative repercussions to that mission you foresee?
We joke that we are borderline degenerate long-termists. We try to be as up front with the risks involved in our product as possible. In the short term (and maybe always), crypto markets are volatile and we could see major declines like we have in the past. We feel now is a better time than ever to start to explore the space- prices (and gas fees) are low and some of the most talented people in the world are building new products at a faster rate than anytime in history. We think the most negative repercussions to come out of the crypto space have been the extent to which they’ve encouraged “degen” trading, a behavior we hope our product is somewhat of an antidote to.
