As a wide meaning in finance, the word Alpha as a term is commonly used to describe a measure of investment, trading or even general performance to a certain project.
Alpha is about the additional or surplus return earned by a certain investment or strategy compared to a benchmark or the broader market.
In other words, alpha specifies the ability of an investment or financial manager to generate returns even more than the expected from passive market exposure.
So Alpha is considered to be as a measure of skill or value added by a financial manager.
Here if we’re talking about the Positive alpha in which it shows that this manager has been able to outperform the market or benchmark, pointing to a great decisions or strategies related to a certain investment.
Since there is the positive alpha than we should have a negative alpha too, where this one and au contraire than the positive it shows the underperformance compared to the market.
So, by gathering the above in one idea it will be, if the alpha is positive, it suggests that the investment has outperformed the market, indicating that the investment manager has generated excess returns and if it was a negative alpha it will show the underperformance compared to the market or benchmark.
This tool the Alpha it’s such an important one for both the investors and analysts in order to evaluate the performance of investment managers, funds, or specific investment strategies. It will help to give a deep idea or to assess whether the manager's returns are a result of skill or luck, as alpha represents the component of returns not explained by market movements.
Also, it's important to note that alpha should be mixed with other performance metrics and factors such as [beta] /@@leoglossary/leoglossary-beta), standard deviation, and the Sharpe ratio to obtain a comprehensive view of investment performance and risk. Additionally, alpha is not always guaranteed to persist in the future and should be evaluated over a meaningful time horizon.
That was the general idea about Alpha, now in the cryptocurrency space, alpha gives in some way or another the same meaning and even go beyond the financial term.
In Cryptocurrency projects are typically categorized as follows:
We have the established Cryptocurrencies; these are the well-known cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) that have been around for a significant period and have a large market capitalization.
Also there’s the altcoins which refer to alternative cryptocurrencies other than Bitcoin. These include cryptocurrencies such as Ripple (XRP), Litecoin (LTC), and Cardano (ADA), among many others. And for sure there’s the initial coin offering (ICOs) and Token Projects which is a popular fundraising method in the cryptocurrency space. This method that allows new projects to raise funds by selling their native tokens to investors. Moreover, the token projects are similar but typically involve the creation and distribution of tokens on existing blockchain platforms like Ethereum.
Adding to the above we have the alpha projects those are the ones that offer an impressive new and creative ways to use blockchain technology. They are mainly referred to early-stage projects that are still working to make a better growth in their environment, and for sure it refers to those that have a potential to revolutionize the way we interact with money and data.
Giving some examples of alpha projects in cryptocurrency, we can talk about the Alpha Finance Lab in which this is a decentralized finance (DeFi) protocol that provides different services similar to the ones in the traditional financial system such as Banks and even more like yield farming, trading, and so on.
In addition to the DeFi protocol called Homora which allow the users to borrow and lend assets on multiple blockchains. Adding the AlphaX the derivatives exchange that allows users to trade perpetual swaps on a variety of assets depending on nature built on decentralization.
These are just a few examples out of many alpha projects that are currently being developed in the cryptocurrency space. As the Blockchain technology continues to grow more and more, we are going to witness even more innovative projects and protocols that will make our financial life easier.
To even add more important information about such projects and in case any enthusiast or investor want to involve, always DYOR, so before investing in any alpha project, it is important to do your research, look for the team behind the project and understand the project's idea and goals.
Another thing to think about is the diversity in portfolio, it’s always up to everyone’s vision and point of view but no one need to put all of his eggs in one basket. So, when investing in alpha projects, it is important to diversify the portfolio and spread the risk across multiple projects.
As we mentioned above that alpha projects are often early-stage so they may take some time to show the results. Being patient is also an important key. Don't expect to get rich quick.
Just like most of investments same as for alpha projects, where investing can be a risky, but it can also be a very rewarding one. If you are willing to do your research and take on some risk, alpha projects can offer the potential for significant returns.
Despite all the ups and downs in the crypto world starting with macroenvironment, microenvironment, even scams and hacks that repeatedly effect this world we still can see numerous projects that are fighting and still in alpha, here I will go broader that the mentioned above and I will talk about Solana with its high-performance blockchain that is designed to be allow the process thousands of transactions per second. This project is also still in the alpha stage, but if we’re saying Solana so we’re talking here about a project that has already attracted a lot of attention from developers and investors.
We have also the well-known scalable and secure blockchain that is designed to be able to support a wide variety of decentralized applications. Which is also still in the alpha stage but has the potential to be a major competitor to Ethereum we’re talking here about Avalanche.
Moreover, there’s the Polygon which is a layer 2 scaling solution for Ethereum. Which allows developers to build and deploy applications without having been worried about the high gas fees that Ethereum is famous with and even faster transactions processing that on the Ethereum [mainnet] /@@leoglossary/leoglossary-mainnet). Polygon is still in the alpha stage.
And the one that we’re going to talk about in this post is the NEAR Protocol.
This decentralized platform that works to be as user-friendly as possible and also to be scalable blockchain. Until this time it is still in its early stages, but to be fair it has the potential to be a major player in the crypto world.
This project works on a new consensus mechanism called Proof-of-Stake 2.0 (PoS 2.0), where this concept itself is built on the Proof of Stake (PoS) in which it is even more efficient and secure than traditional one where the (PoS) was built on Proof-of-Work (PoW)blockchains. NEAR uses a programming language called Rust, which is designed to be more secure and efficient than other programming languages used for blockchain development.
We can find number of features in NEAR protocol that make it a promising platform for decentralized applications (dapps). Such as the scalability where it is designed to be able to process up to millions of transactions per second. Which makes it ideal for Dapps that require high yield or productivity, such as gaming and DeFi applications.
Beside that NEAR Protocol will guarantee security to its users since it uses a number of security features for protection, one of them the previously mentioned Proof-of-Stake 2.0, hashing, and a decentralized governance system.
Not to forget the principal idea for NEAR Protocol which is the ease of use, so it’s designed to be easy to use for both developers and users. It has a simple user interface and a developer-friendly API.
Despite being in its early stages the NEAR Protocol was able to raise hundreds of millions of Dollars in funding from a number of investors, including Pantera Capital, Andreessen Horowitz, and Union Square Ventures.
If we’re talking about for decentralized applications (Dapps) than NEAR Protocol is one of the promising platforms.
Moreover, talking about the Economy NEAR has a unique way for leveraging token economics that empowers both creators and developers, who for example earn 30% of the fees their contracts generate, while network participants earn rewards for validating transactions or providing storage.
Talking about NEAR’s compatibility where it is designed to be an interoperable Layer-1 (L1) network that can, through different services, provide a scalable infrastructure that communicates with other chains and ecosystems.
NEAR will split the work of processing transactions across many participating nodes to ensure the network can scale as it grows in users and demand making NEAR ready today for mass adoption of Web3. In a feature called Sharding.
Adding to its project one of the important concepts that can help in organizing, funding and giving more power to communities the decentralized autonomous organization (DAOs) which offer a new way for communities to collaborate. So here members own the organization and receive rewards in proportion to their contributions. There are no bosses and no hierarchy. Instead, a common purpose unites the participants. One way to think of a DAO is a Facebook group with its own bank account.
But that’s not it, since NEAR also provide a big support since the ecosystem offers financial support, advice and networking to projects to help them become thriving businesses.
We talked about NEAR and we mentioned just a few of the many crypto projects that are currently in alpha. As the technology continues to evolve, we can expect to see even more innovative and groundbreaking projects emerge.
Always it is important to note that alpha projects are often high-risk, high-reward investments.
So if you are interested in investing in alpha projects, it is important to do your research and understand the risks involved. It is important to only invest what you can afford to lose.
NB.: This article is not a financial advice, always Do Your Own Research.