Alkimiya’s Ethereum Protocol Establishes Bitcoin Fee Hedging Market

A new blockchain protocol named Alkimiya has been introduced, offering a tool that enables users to protect themselves against the fluctuating Bitcoin (BTC) transaction fees. The challenge lies in convincing staunch Bitcoin supporters, often referred to as “maximalists” or “maxis,” to embrace this new protocol since it operates on the Ethereum blockchain. The platform, labeled as a “blockspace markets protocol,” is expected to cater to traders, mining pools, and foundations.

Alkimiya’s founder and CEO, Leo Zhang, highlighted the company’s focus on establishing a robust marketplace for trading Bitcoin transaction fees, acknowledging the initial reluctance from Bitcoin maximalists to adopt an Ethereum-based solution. The necessity for a solution like Alkimiya became evident in April when the Runes protocol by Casey Rodarmor led to a significant surge in Bitcoin network fees, reaching $125 per transaction from $4.80.

With Bitcoin mining companies facing escalating operational expenses, there is a growing demand for hedging tools to shield against fee volatility, as emphasized in Alkimiya’s press release. The company, established in 2021, has garnered support from investors such as Dragonfly, Castle Island Ventures, Coinbase Ventures, and others, raising $7.2 million in funding in January 2023 and commencing operations on a test network in April.

Bitcoin, functioning as a peer-to-peer payment network since 2009, boasts a loyal user base that is often skeptical of solutions not directly integrated with its original blockchain. Despite Bitcoin’s lack of programmability compared to Ethereum, which surfaced in 2015, Alkimiya’s design necessitates some level of programming, aligning with the Ethereum ecosystem’s characteristics.

Alkimiya’s operational framework involves users entering Buy and Sell positions for various pools through NFTs (ERC-1155) known as Long and Short shares. An ERC-1155 standard, defined as a smart-contract interface capable of managing diverse token types, plays a pivotal role in Alkimiya’s functionality. Zhang indicated that the project is closely monitoring the development of Ethereum-compatible layer-2 solutions on the Bitcoin blockchain and UTXO-based approaches.

The utilization of UTXOs, integral to Bitcoin’s architecture and distinct from Ethereum’s account model, underscores the ongoing evolution of Bitcoin layer-2 solutions, particularly those aiming for Ethereum compatibility. Zhang emphasized the commitment to decentralization and avoidance of centralization by opting to develop on Ethereum due to the current limitations in developing directly on Bitcoin. The ultimate objective is to establish seamless integration pathways that simplify access to Alkimiya’s platform for Bitcoin users without the need to manage multiple wallets or interfaces.