Hi Fintech Architects,
In this episode, Lex chats with Yoshi Yokokawa, CEO of Alpaca — a brokerage infrastructure company that provides API-based trading and custody services to fintechs and developers globally.
The conversation begins with their shared experience at Lehman Brothers during the 2008 financial crisis, where Yoshi worked in fixed income securitization and learned that even when market participants sense a bubble, they keep dancing because timing the exit is impossible. After Lehman's collapse, Yoshi pursued entrepreneurship, building a computer vision AI company acquired by Kyocera before founding Alpaca in 2017. Initially inspired by Robinhood, Yoshi pivoted after experiencing firsthand the friction of accessing brokerage infrastructure—realizing the deeper opportunity was building API-first brokerage rails for developers. Today Alpaca powers 9 million accounts through 300+ partners across 45 countries, recently raising $150 million at a unicorn valuation.
The discussion explores how Alpaca follows Robinhood's product roadmap to anticipate partner demand, the challenges of adding crypto, and Yoshi's thesis that finance is undergoing a generational shift from digital to on-chain operations. Lex shares examples of legacy infrastructure dysfunction—from faxing PDFs to TD Ameritrade in 2012 to the Synapse collapse caused by manual CSV uploads—illustrating why Alpaca built its own custody and ledger systems as a path to competing in the $350 trillion global securities custody market.
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Thanks for your time and attention,
Matt Low 🙌
Key notable takeaways:
Alpaca’s biggest breakthrough was not a better investing app idea, but recognizing that the real bottleneck was brokerage infrastructure. Yokokawa and team initially explored B2C product concepts, but pivoted once they experienced firsthand how painful broker-dealer setup, custody, and clearing integrations were. For readers building fintech, this is a huge lesson: the highest-value opportunity is often the “invisible” infrastructure pain, not the user-facing feature set.
They found product-market fit by starting with a narrow wedge (API for automated traders) and only then expanding into a broader platform (Broker API for fintech apps). Alpaca did not begin by serving large fintechs; it first attracted power users who urgently needed programmable execution, then used inbound demand (“can I build my own Robinhood?”) as proof to build account opening, reporting, and full brokerage APIs. This is a valuable go-to-market pattern for infrastructure startups: win with a sharp use case, then expand into the system of record.
Yokokawa’s core strategic edge is full-stack control of licenses, memberships, and ledger technology rather than relying on legacy vendors. He explicitly ties this to lessons from historical fintech fragility (manual workflows, broken reconciliations, middleware failures) and argues that owning the custody/clearing layer is what makes Alpaca defensible long term. For readers, this is the key takeaway on moat-building in financial services: if you don’t control the ledger and operational core, your product may scale faster at first but remains structurally fragile.
Background
Yoshi Yokokawa began his career at Lehman Brothers in 2005, joining the fixed income capital markets team where he specialized in securitization, including subprime asset-backed securities and structured products like ABS CDOs. His clients included major Asian institutional investors such as GIC, Temasek, and large Japanese and Chinese banks.
After Lehman’s collapse in 2008 and Nomura’s acquisition of the Asian operations, Yoshi left traditional finance to pursue independent trading. Recognizing the limitations of day trading with limited capital, he pivoted to entrepreneurship.
In 2012, he co-founded a computer vision AI company during the early deep learning wave, selling image recognition technology to enterprises including medical companies and Nintendo. The company was acquired by Kyocera Group. He subsequently built a market prediction venture applying deep neural networks to financial data, which laid the groundwork for Alpaca’s founding in 2017.
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Topics:
Alpaca, Lehman Brothers, Barclays, Nomura, Neuberger Berman, Blackrock, Robinhood, Interactive Brokers, TD Ameritrade, BNY Mellon, Brokerage infrastructure, API, trading, tokenization, embedded finance, fintech, crypto, web3
Timestamps
1’08: From Lehman and Subprime ABS to Alpaca: Yoshi Yokokawa’s Origin Story
4’39: Neuberger’s $120B MBO and Lehman’s Core Lesson: Keep Dancing Until the Music Stops
7’17: From AAA Securitized Demand to Startup Conviction: Yoshi’s Post Lehman Pivot From Asia Institutions to Entrepreneurship
10’59: Computer Vision AI at the Deep Learning Inflection Point: Building a Profitable Startup and Exiting to Kyocera
13’29: Web2 Fintech Tailwinds and Robinhood Inspiration: Searching for the Right Investing Product in 2017
15’23: Mockups to Broker API Pivot: Why Trade Execution Pain Beat User Interview Insights in 12 Months
19’46: API Brokerage Go to Market: Winning Automated Traders First Then Expanding Into Global Fintech Infrastructure
24’25: Broker API Expansion and Early Partners: Midas and GoTrade Validate the Shift to Fintech Infrastructure and Crypto
26’53: Global Broker Demand and Crypto Buildout: Using Robinhood Signals to Drive Multi Asset Infrastructure in One API
29’48: Multi Asset Revenue and the Endgame: 300 Partners 45 Countries 9M Accounts and a $350T Custody Ambition
34’07: Tokenization as the Regime Shift: How On Chain Finance Could Disrupt BNY Mellon and Reshape $350T Custody
37’12: Fax Machines CSV Ledgers and the Case for Web3 Finance: Why Owning the Custody Stack and Ledger Matters
45’37: The channels used to connect with Yoshi & learn more about Alpaca
Illustrated Transcript
Lex Sokolin:
Welcome to today's conversation. We have an absolutely fantastic guest with us today. Yoshi Yokokawa, who is the co-founder and CEO of alpaca. Alpaca is a fintech that provides brokerage and crypto access services to developers and to other firms, and has had absolutely amazing traction over the last few years, so I'm excited to talk about that. And also, I'm excited to talk about Lehman Brothers for a little bit as well. So Yoshi, welcome to the conversation.
Yoshi Yokokawa:
Thank you, Lex. Super excited to be here.
Lex Sokolin:
I was at Lehman in 2006, joined right after school in investment management in New York, and we had one fantastic year and then we had one. Sort of like things are weird year where management told us all to buy Lehman stock as it was going down to zero, which we did. And then we had the year of sort of the British invasion as Barclays came in to take over the business. How was your experience?
Yoshi Yokokawa:
Yeah, I guess it's a little bit similar. I started full time at Lehman, you know, right after school, 2005. I was at the capital market side. So I was in fixed income, literally in the securitization team. So doing the subprime ABS stuff very much.
Lex Sokolin:
Yes.
Yoshi Yokokawa:
Literally. Yes. And then, yeah, exactly like 2005, 2006. Like spread or tightening more demands. You know, amazing stuff. And then, you know, became like 2007. Same as you. It's getting a little bit weird, but at the same time, leverage, it was getting higher. So it's actually more interesting products like ABS, CDOs, CDO squared structured investment vehicle, like, you know, a bunch of the securitization of the securitized assets.
So that's what, you know, started happening. And then basically after that, I think like a European side. No, no US side, a European side in the Asian side was, gotten taken over by the Japanese invasion. Nomura instead of Barclays. So that's, you know, I spent probably 3 to 6 months, I don't remember, but, just going to office and reading books every day because I had to show up in the office.
Lex Sokolin:
Yeah. Fun fact about the Barclays acquisition is that in order to afford Lehman Brothers and Neuberger Berman, which they thought they were getting but didn't, they sold off BGI, which was the iShares business which is now like the so many trillions of dollars of Blackrock.
Yoshi Yokokawa:
Wow. I didn't know that they had to sell that off for Lehman and Neuberger. Wow, I didn't know that.
Lex Sokolin:
I don't know if they had to, but I remember them being like, oh, we need some cash to buy this thing. And they got just, you know, they got what they got.
Yoshi Yokokawa:
Yeah. Neuberger transaction was pretty interesting, right? Because, they ended up doing like M&A. I don't know. Management buyout MBO right.
Lex Sokolin:
Oh my God. We can have a whole thing about Neuberger. I was an analyst and I knew all the senior management there because, you know, the investment management business was half brokerage and then half asset management and then a bit of private equity. So, all of the people who were doing hedge fund and private equity stuff at a senior level ended up parking themselves on top of Neuberger, which at the time was like $120 billion mutual fund complex. And then all this stuff was sitting in the bankruptcy court, you know, worth zero and maybe minus a lot based on what Bank of America paid for Merrill Lynch. And what these guys did is they said, hey, bankruptcy court, we have a better deal for you than selling this to Barclays, which wasn't going to pay up for it that much. I think we're going to give you, like, all this money, except we don't have it right now.
We'll give it to you in. I forget the number, but like five years and also, we're going to borrow it from you. so, they borrowed from themselves the money with which to do the management buyout and the amount of quote unquote success that people saw from that deal was, I mean, incredible.
Yoshi Yokokawa:
Yeah, yeah. I think Japan or Asia has been my extremely good friend because I when I joined, I was kind of part of, investment management as well, which before it became Neuberger, because I was working for the pension fund team and pension fund is basically investment management products, right? Like alternatives and all those things. So, I remember working with that team a pretty long time. But it was an interesting time.
Lex Sokolin:
Got it. Okay. So, Nomura came in and took over. And so tell me a little bit more about sort of the part of capital markets that you saw. And then what did you see happen to the capital markets, and what were the core lessons that you took away?
Yoshi Yokokawa:
Yeah, I think a few things that I really felt was that everyone was talking about, like, if you remember that Lehman days. Right. There's a head of the I think the head of the research head of the mortgage research. He's a famous guy called Sreenivas. He was writing this, like very pessimistic outlook on the mortgage market since, I don't know, like 2006, 2007 about like it's going to crash, blah, blah, blah. And I think at this point, like I think 2007, early 2008, we all kind of knew that this is a bubble, even though we're, like, fresh out of college and, you know, have not experienced different cycles in the past, even we kind of felt that something was coming. But the thing is, like we kept on dancing, right? And at that time, like, I really didn't understand why we kept on dancing. Even we knew that something was going to happen. I think like that was really the big lesson that I had from the experience was that it doesn't matter if we knew it was coming because like, we don't know when it was going to come.
Exactly. So, like, you know, we kind of had to keep dancing because if we stop dancing, we're not going to be competitive anymore. So, I feel like this, this kind of dilemma that we always face in that business, like kind of managing the something that was probably going to happen, but we don't know when. So, we kind of have to dance with it until it stops and we try to react to it as quickly as possible. I think that was like big, big, big, big lesson that I'm still kind of always utilize when making a decision. Alpaca today as well.
Lex Sokolin:
I'm going to do my best not to ask a question about artificial intelligence. You know, and Nvidia stock and the Bitcoin price. Because the water just goes one way. But the markets go on and the cycle goes on. Who were your clients at the time. Like what were your counterparties and what kinds of things did they want.
Yoshi Yokokawa:
So, my basic clients were all the big financial institutions in Asia from like, I don't know, like GIC, Temasek to Tokyo, Mitsubishi to like, you know, the Chinese banks and you know, the big pension funds basically in Asia, they all wanted to have alternative assets.
And alternative assets included securitized products like asset backed securities, CMBS and all those things, and even ABS, CDO, higher yield products. So, you know, we were basically trying to figure out how to provide that with the highest rating, which is triple A as much as possible, so that that was what we've been working on most of the time.
Lex Sokolin:
Okay. So that's kind of the core financial experience and education you had. By 2010, you went independent to be a capital markets participant. What was it like to kind of clip off the mothership and what pushed you in that direction? And sort of how did you think about the world?
Yoshi Yokokawa:
I think after Lehman went down, I kind of felt like I’ve always been feeling that the industry was not for me, for my life, if that makes sense. I think, like when I entered the industry, I was feeling like this is going to be a training for me, that like when you do well, you get paid well, you get promoted well, you get evaluated well, but at the same time, like, I wasn't really thinking what the actual work meant or how that's going to resonate with how I think about my life or my view of what I'm thinking.
So I think like that's how I was like during working there. So, when Lehman went down, I kind of went back to my original thought when I started in the industry. Like, why am I here kind of thing. And that's the reason why, like, I kind of decided to leave the whole industry instead of working for different banks. But then like what I realized is after leaving the industry, I didn't have any skill sets or anything. I didn't know about startup. I didn't know about starting a company. I knew that I needed to survive because I needed to eat. And the only thing that I felt that maybe I could do is day trading because, like, I was in the capital markets, you know, I was supposed to know things. And so that's a that's really the only reason why that I went. You know, start doing day trading, you know, here and there.
Lex Sokolin:
What happened next. Like, how did that go and what did it lead you to?
Yoshi Yokokawa:
What I realized was that without like, very small capital, it's very difficult to gain enough money very constantly. So, like, you know, spending time in front of the monitors, studying the market, it was not really high, well-paid job to like, you know, continue to support myself. And the other thing was that also I realized that what I also analyzed, like what I really was liking during working at Lehman and what I was not really feeling too excited or satisfied when working at Lehman. And I think, like, what I really liked about working at Lehman was working with extremely smart people, very sharp people. If you say 1 or 2 things, then, you know, like my teammates understand ten things, right, of what I was trying to do. And that communication and drive and speed was something that I truly missed or like, really liked. So, I think, like, you know, I realized that I wanted to work with someone that I can trust with the same level of the integrity, Speed and then curiosity and do something together. So that was like that led me to building a few companies after the doing the day trading with my friends.
Lex Sokolin:
And so, some of those company’s finance was the customer, again. Right. For your machine learning company, what did that do and what was the product?
Yoshi Yokokawa:
Yeah, actually the first company that we did that it was nothing to do with financial markets. We were building the computer vision AI. I don't know if you remember, like I think it was like back in 2000, I think like 12 or 13, there was like Toronto University loans because like right now, we're talking about AI. But at that time, deep learning was the word, right. Like there's like deep neural nets. And then, you know, the computer vision accuracy went up by I don't remember, it's like ten, 15% because of, like, utilization of deep neural nets. So, like, there's like, you know, CNN and like, you know, the LSTM model and all those things. And then that's like when we oh, this is going to be really revolutionary. Let's make something, you know.
That we can utilize for this computer vision to become apply something. So, we are selling that to, you know, like those medical agencies or like, even like Nintendo, those gaming companies, companies who have a lot of visual contents, like videos, images, were actually providing that kind of a computer vision AI to those businesses. That was like our first company that we did.
Lex Sokolin:
How did it go? What was it like to make a software product?
Yoshi Yokokawa:
I kind of felt very disadvantageous at that point because like, you know, I had no background in AI. You know, I was not like, you know, the engineering side, like I was more during the biz dev and, you know, marketing in sales. You know, my friend, my co-founder doing more of the tech and, you know, architecting and stuff. So, I realized that, like, you know, I was not really fulfilling or utilizing my interest or skill sets in the right place. So, we ended up to be selling that to one of the biggest Japanese technology companies called Kyocera Group.
So that's how we kind of exited that business, even though we had a profitable and, you know, multiple clients using our AI computer vision AI.
Lex Sokolin:
So that gets us to 2017 and the, I guess the seeds for what is today Alpaca and kind of paying 2017. It's fairly far or not even midway, but fairly far into this web2 fintech revolution. You know, we've had the first wave of robo advisors and then the Neo Banks around 2014, 2015 as a wave. You know, Plaid is big. Stripe is starting to get quite large. On the embedded finance side. You might have things like, you know, drive wealth, and some of the custodians are trying to open up some of the stuff underneath. How did you see the environment around you and what direction did you go in at that time?
Yoshi Yokokawa:
So, when Hitoshi and I basically kind of spun out from another business that we started after computer vision, which was utilizing similar underlying. Deep neural nets into market price prediction. Basically, we spun ourselves off to actually create a product instead of like doing more of the, you know, consultation or like very heavy enterprise type of the business that we had at that point.
And that was like 2017. And when Hitoshi and I were just trying to go through how we build actual real product, I was personally extremely inspired. And then kind of like influenced definitely by the velocity that Robinhood had. I, of course, like, you know, at that time it was like motif investing. I just said, like, you know, there's a Wealthfront, Betterment, and Robinhood. And I think, like, you know, Robinhood because like, back then, like their waitlist came out, I think it was like, what, 2013 or 2015? Somewhere around there I was in Japan and I signed up for the waitlist, but then I couldn't install it when they launched. So that was really something that I was very much kind of disappointed. At the same time, I was extremely interested and started paying so much attention to what they do because like, I really liked what they do. Like I thought, like what they do is really cool. We wanted to build something that's like Robin Hood in a way. So that was like an initial thing that we were trying to do. Like if there's any demands that actually exists around that.
Lex Sokolin:
So B2C brokerage.
Yoshi Yokokawa:
We weren't even thinking about brokerage. We were just like trying to figure out like, what is the product that people want in that? Like trading and the investing in general. And we even didn't understand, like if it needs to be a brokerage investment advisor or not, right. Like that's how naive we were. We even didn't understand the regulatory framework at that point.
Lex Sokolin:
What was the first version of the product?
Yoshi Yokokawa:
The first version of the product? Like, you know, we created like a bunch of the mockups of the like, you know, the same thing, like I think like, you know, we still see those like, you know, ideas sharing by the, you know, end customers, like, you know, the copying stuff or, you know, social stuff to the more of the neutral trading tips or like investing ideas and all those things to be flowing through into the app, like, because like Robinhood was very much, very skeleton in a way to really focusing on the utility of being able to buy and sell.
So, we thought that like adding the contents or actual knowledge or something else was a valuable thing after Robinhood came. So that was kind of like, you know, top-down thought process that we had. And we tried to create a bunch of the mocks up and the mock ups and like, did the user interviews. So those are the kind of trials that we did.
Lex Sokolin:
How far did you get with that?
Yoshi Yokokawa:
And what we ended up realizing was that, and at the same time, like we were learning that without actual trade execution capability, it would have been extremely difficult to even get to the people's attention or like try out and create actual utility for the customers. So, we were finally studying how to get the broker dealer license, how to set up like all those things and like working with the underlying clearing custodian at the time as well. And then what we realized was that compared to the user feedback of the problem, that in the customers had at least like, you know, our discovery process, right? Of course, like people have a different discovery process.
But for us, like, you know, the problem size of the problem or seriousness of the problem compared to that, what we hear from the customers, what we went through as alpaca historian myself, trying to set up a broker dealer itself, firstly, like, you know, we went to like for example, Interactive Brokers trying to get the API documents and trying to get approval. And you know, we didn't hear back at all. And then like, you know, try to work with the, you know, Apex clearing because like, that is the only thing that really existed at that point. And then we heard about them because Robinhood was using them at that time. You know, it wasn't that pleasant experience in terms of the fees and everything. So, the problem that Hitoshi and I experienced was much deeper, much more emotional than like what I was getting the feedback from the end customers showing our mock up. So, at that point, like we realized that, you know what? Like, why don't we just try to solve the problem that we went through or we've been going through it? Maybe, you know, this is something that we can explain, like, and feel very emotionally about the problem that we went through instead of trying to find the, you know, problem that other people may have that, you know, we could solve.
Lex Sokolin:
Roughly how long did this take you? Is this, like a couple of years or, you know, before you kind of launch your first version.
Yoshi Yokokawa:
Probably one year process, I guess, because like in 2017, we, started preparing for the broker dealer license, and then it took like one year, 12 months to get the first broker dealer license. I think it was like middle of 2018. So, at that point when we received the broker dealer license. We knew that we're pivoting into more of like an API. Broker dealer product. So, I think like that back and forth, trying to figure out what to build. I think that process was probably like 6 to 9 months. And after that period of time, we kind of made a decision. We just only focused on API, just that.
Lex Sokolin:
You know, just for context, like I built a robo advisor between 2009 and 2016 that ended up being a wealth tech company and we never integrated. We had an RA, but we never integrated down into the broker dealer business, and we used traditional custodians, which was a special kind of pleasure.
And I think the right answer in retrospect, after a decade, is that the folks who did go down to the regulatory level and, you know, did control the funds are the ones who built large, scalable businesses that are interesting. But like when I think about 2017, like you said, apex definitely underneath a whole bunch of stuff. And then I think it was Point72 that had invested in DriveWealth, right? As like a brokerage embedded finance solution. What was the competitive environment like? Was there any competition? Did it even matter? And then from that, who were your first customers.
Yoshi Yokokawa:
So, when we started this like API stock brokerage, we even didn't like as a long-term view, we knew we wanted to solve the experience that we had ourselves going through with the apex. And then if we are to do that of course we would compete against like drywall or someone like that. But our first initial version that we launched, we weren't even trying to scope that out that big. That was like kind of big pitch that we had.
But like, that's not something that we made the first product for. The first thing that we did was that because of that, you know, API approach, we thought like, who are the someone that would use this right away instead of, like, you know, the big use case of, like, let's build a fintech app. It was actually more of the, the problem or the interest to automate what the people do in the daily investing. For example, like if someone using Robinhood but like, you know, some people are like trading so much but like they're doing full manually. And at that time there was like, you know, like, you know, hacking that was happening into the Robinhood code and trying to automate the trading. And they keep getting banned. And that was like always like viral in Reddit. And then we knew that that was happening. So those are the kind of first use cases or the customer base that who started using Alpaca API not to build the brokerage app, but to automate, trade or like start doing the automated trading using our API.
Lex Sokolin:
Was positioning difficult like data access, read write access?
Yoshi Yokokawa:
I think like, you know, of course latency based and then scalability that tied the system requirement. Of course, that's something that we have to extremely like build out the right product. But the capability wise is very same as what the Robinhood has built, right? So that itself was not that complicated.
Lex Sokolin:
How did product market fit come like which bits of this started to grow faster than others? And you know, how quickly did you know that it was working? You've been building this company for a while, and I know that growth can come in kind of stops and starts. Can you talk about sort of like where were the pockets of demand over time and how did it evolve?
Yoshi Yokokawa:
So, we launched this product in I think middle of 2018. And we went through I see end of 2018 to early 2019. So, this was really just we're saying that this is an API stock brokerage or you know, stock trading API. At that point, people are just really building automated trading.
And then at the same time, like because of that, like, you know, our attraction, including volume and the user base has been growing extremely, massively. the like. I think growth level like, you know, typical company. We had the extremely great hockey stick revenue growth and the user base growth. But at the same time, as you can imagine, super active trading is not like sustainable, like for a long time. And I was feeling a very similar way because like, you know, some people may make money in certain, you know, market environment and then they may lose money very quickly in some other market environment. So, in order to continue to scale this at the significant level, I also knew that that was not really possible back of our head. And then also like, you know, we started this whole API first, also having this kind of ambition to solve the problem that we ourselves experienced, actually building the broker dealer. So, we wanted to get into that too.
That was like also back of our head as well. While thinking that thing, while seeing that like a lot of volume growing. We also started seeing this like so many inquiries and questions that came from the developer base, like who was using API is that, oh, can I use my own version of Robinhood? Oh, can I use better version of Robinhood? Or can I build my version of the Robinhood in my country that's outside the US. So, we started getting so many contacts and questions. That was really under the timing that we clicked the it clicked is that okay? We have to now really build and, you know, enhance the capabilities that really allow them to do what they really asking us to do. And that was not only that, that really required us to build much more than just having the accessibility trading API to buy and sell only. So that was really when we had to add more investment into what we had. And so, like after launching that, like the like market size completely changed as well.
Lex Sokolin:
So going from people who want to trade algorithmically to people who want to use that algorithmic trading infrastructure to create their own distribution.
Yoshi Yokokawa:
That is correct. Like which is building the fintech apps.
Lex Sokolin:
What were some of the early fintech apps that used you as the guts.
Yoshi Yokokawa:
After deciding that? Because like in the first version of our API, it only had the API to buy and sell stocks. Right. Because like, you know, if you are automating your trades, basically that's why you need it. But in order to build the fintech apps, you have to have API to open the accounts or, you know, send these some kind of reports. Those kinds of things are needed, which is very different from just offering the buy and sell capabilities. That was really something that we had to build. But like in launching that product, now we are calling it as broker API, which is, you know, what we do as a, you know, more of the big revenue generator, the first two partners that decided to take a bet on this is a company called Midas in Turkey, and then also GoTrade in Indonesia. So those are the two companies, two fintech apps who decided to bet on their product that's newly launching.
Lex Sokolin:
How did you get into the other business lines, including the crypto one? What was your journey like there?
Yoshi Yokokawa:
Yeah, so crypto was just like simply adding the asset classes, right? So, like, you know, we had already kind of product lines of trading API, which is more targeted towards automated trading, algorithmic trading. And then there is another product called broker API, which is basically for fintechs, apps or, you know, banks to add investing capabilities. We already had that thing, so we just wanted to add different asset classes. At that point we only had the stock US stocks. So, we wanted to add crypto. So, for us it was just a no brainer that because everyone wanted to have a crypto accessibility regardless of how they access it. So that’s how we went into crypto. And of course, like Robinhood was there already. So we are of course, always following what the Robinhood does.
Because you know, that's what you know, our client broker dealers always get you know inspired by two right. So, looking at like what the Robinhood does is the next step has been extremely important for us to add to. And the crypto was one of that at that time.
Lex Sokolin:
That's a really interesting product development approach. But it also makes sense, right. Because if I'm competing with Robinhood as a B2C platform, I need my infrastructure to be ready for me to go and sell that product. And so, I see how that's a strong signal.
Yoshi Yokokawa:
Yeah. And what's interesting is that we also have, I think, like more than half of them are partners. Broker dealers are outside the United States. So, they're, you know, targeting their own user base, but they're also trying to do so much research on, like how Robinhood became successful. So, like I think like they are asking us the feature sets because they already studied what Robinhood did or what's working for Robinhood and asking us to build that. So that was also the kind of direction that we had to follow as a product development journey.
Lex Sokolin:
Was it difficult to get crypto assets into the broker dealer context? I mean, it's lots of people are launching it, but the architecture is completely different, you know, and you have kind of specialist players like Zero Hash and so on that focus on it. But what was it like to build out that part of the business?
Yoshi Yokokawa:
So, we had to, bring our co-founder, my co-founder CTO Hitoshi, as the head of the crypto to really extremely focus on it, to launch it. You're right. I think like it's one of the asset classes in a way. It's a crypto or US stocks or fixed income. But the reality is completely different architecture, different contexts, different players and different risk appetites and then different risk monitoring that we have to do. So, it's basically like same thing as building the new business from the scratch. You know, that's how much of the resource and the mental capacity that we had to spend as a company to launch the crypto. But again, like our job is to offer accessibility to, you know, our partners or like our algorithmic traders in the best, you know, easiest way as possible, seamlessly combined with asset classes they already had access to, which was stocks and options and stuff.
So that was really a big focus for us to make sure the experience is extremely seamless, that you are not connecting to new API, you're actually adding the new asset classes inside of the same API. So that was something that we really focused on.
Lex Sokolin:
I'm curious in terms of economic contribution to the business. You know, you have these kind of three business lines and types of customers, right? You've got the people who are sophisticated traders themselves. Then you have the folks who are building consumer trading experiences and need infrastructure, and then a bunch of them are also now adding the crypto asset class. You know, like when I look at Robinhood or even SoFi or revolute, there's a very large share of their profitability that's coming from crypto because the markets are less efficient or people kind of expect less tight pricing and so on. The market makers are able to make more money. When you look at your business, what are the main kind of revenue drivers? And then in which of them do you see growth accelerating?
Yoshi Yokokawa:
I think our strength is, you know, not offering only crypto only, but it's really a combination of the multi-asset classes that we offer.
So, I think like how I think about it is that I think like profitability of the asset class is definitely do matter. So, you know that crypto and you know options trading. Those are definitely like high profitability products. But at the same time, when I look at our partner broker dealers or even like algorithmic traders, sophisticated trader base, those broker dealer partners, you know, they all have a different context of their own countries they operate in. So, we've launched like more than 300 partners in 45 different countries. So, each of the country has different contexts about, you know, crypto, what kind of regulation or like even where that crypto needs to be considered. It's very different from securities. So how I see it is that it's still ongoing process for us to for our partners to be able to integrate crypto in a very seamless way in their own respective countries. So, I think like that's still ongoing, and we're very excited that it's going to continue to grow. But like I think like growth area that we see in terms of the revenue is definitely like, you know, those high leverage products as well. Like, you know, the options trading. That's kind of an extension of the US stocks that we offer as the majority of the asset class.
Lex Sokolin:
Yeah, I mean, just for scale, you've got 9 million brokerage accounts that I think you power just raised 150 million checks with a unicorn valuation. So, congratulations on absolutely amazing progress when you think about the future. Like how big does this get. What is the end point both in terms of product and then, you know, is it 100 million accounts. Is it excuse. What's the shape of the business at its terminal point?
Yoshi Yokokawa:
Lex, I appreciate this question because I can talk about this all day long. But so, we brand ourselves as like, you know, brokerage infrastructure company. Right. Powering like, you know, a bunch of the modern applications in the world. But the reality of what we do is extremely boring. Always existed business for like, you know, 100 years ago, which is just clearing and custody of these financial assets.
That's what we do. So, when we look at our business in that lens, our market size is basically really, really huge. That basically like securities that's custody in the world is about $350 trillion. And the people who will have access to the financial service, financial services. And you know, this investing is basically everyone on the planet as a as a human, which is 8.5 billion people. So, so like kind of thinking about that. We are still, I don't know, like even in the first inning or like in the very half of the first inning, because we only have 9 million people that's connected. We have to get to 8.5 billion. So that's the kind of scale that I'm thinking that we have to get. And then in terms of the assets that's custody in the world, it's like 350 trillion. The biggest one is, I think, Bank of New York parsing and State Street's around 75 trillion or $50 trillion. So, we need to get to the size at least to become a, you know, major player in this field.
And it doesn't take you know, it's not like we're going to get there in a few years. But like, you know, we're playing in the extremely long, you know, big market. And that's why like I feel like I'm very excited because it's so aligned with my personal experience or like how I think about the world and like how it should be. And that's why, like, I think it's super exciting that this is a big, big, long journey, but at the same time, like it's a huge market that, you know, we can do so much to make an impact.
Lex Sokolin:
There's been recent news of your collaboration with crypto players focused on tokenized equities. Right. So, like Ondo, Solana and so on. So, I'm really interested in that where that's going to go. And then the second question is you mentioned BNY Mellon. Like how do you throw the stone through their window. Like on what dimension will you outcompete BNY Mellon?
Yoshi Yokokawa:
Actually, you know, these two questions kind of connected. Maybe that's the reason why you threw those two questions. But I think, like in terms of what's happening in the tokenization, I definitely like want to. I would love to learn from you as well on this. But like my view is that this tokenization is a very similar shift that happened, you know, 50 years ago where manual only financial services operations moved to, you know, digital digitized financial services operations. And that created a whole new industry of like brokerage or FIS or, you know, those system developments and technology companies. And then, you know, the whole industry became much, you know, structured, much more structured, less systemic risk, you know, much more optimized. And I think what we are seeing right now is very similar shift from like manual to digital now digital to on chain. So, there's a whole industry that has to move on chain. And why I'm saying this has to. Is that because it just logically makes sense and it's good for everyone? It's less systemic risk because like settlement risk becomes almost zero because of the, you know, settlement automatically.
And then like, you know, all those assets will be on the same layer or the same wallet. So, it can be cross marginal everywhere in the world. So that creates much more efficiency in terms of the capital usage. So, it's again less, you know, credit risk, less systemic risk. So, as a financial services as a whole, not only talking about the capital markets assets, I think, which is like tokenization is a one way to get there. And then stablecoin. I consider them as a tokenized USD is a part of that too. So, I think like that's how I view about what's happening. And we still don't know yet what is a majority like major primary kind of waste that's going to happen in like when we look back 20 years later. But like our job is to, you know, be the infrastructure to support any activities that will happen because there's a shift in the migration from digital financial services operation to on chain financial services operation. And someone has to bridge that. And the people who's going to bridge that will have the major influence and the market share when that moves to the full-on chain financial services operation.
And that's connected to your second question about how to throw a throw a stone at the Bank of New York Mellon is exactly that. When the whole industry shifts to the different regime, that's when the, like, real new winner arrives and there's a replacement of the major players. And that's how I see what's happening, in my opinion. And that's we alpaca has a very real shot to become a major player when the shift happens. And we don't know when, but it will happen for sure. And that's also what I'm saying. I'm saying that this is a very long big game that we're playing, but we're extremely optimistic that we can actually get there to win the majority. You know, major share in this whole, you know, security's custodian clearing layer of the $350 trillion that's existing right now.
Lex Sokolin:
I'm ready to invest in your seed round. If you can just open up that safe note for me, that'd be great. Yeah. You know, so I'm going to be a little bit indulgent and just share some personal experience as well. I spent four years at Consensys, which is the Ethereum Labs company behind MetaMask and all of that. This obviously it's like a niche podcast. It's for people who love fintech and decentralized finance and so on. But there's still going to be people who are operators or strategists who are like, I am so bored of listening to these blockchain. People talk about tokens, you know, like it just doesn't matter. Like, there's still people out there who are like this or who think, you know, Trump launched a meme coin and therefore everything is crime and corruption, right? And I have two examples. The first one took me to the path where we are today personally. And then the second one is in the last like two years. And I think it just beyond a shadow of a doubt. It is obvious that finance is moving on chain and that's the right answer. And so, the first example is we're building out the robo advisor. Or at the time it was like private label robo advisors, like 2012, 2013.
And the custodians around BNY Mellon, Schwab, TD Ameritrade and some other smaller people who are now out of business apex. But that's kind of API first. And nobody wants to do private label or API stuff except at the time it was TD Ameritrade. And it's been so long ago that I think I can dox them. And TD Ameritrade says, okay, like come build your private label robo advisor for like the 500 billion of assets in our platform that are under Rias. And you know they'll be your clients will be your platform. Just integrate into us. One of the things we do again is 2012. 2013 is just digital onboarding, which means like as a human being, you go to a website or a mobile app and you put the things into the text box, and then that thing from the text box, like you want to open your account under your name, right? And so you want to just put the information in and then have the account open, which today, you know, pretty trivial.
Here's what happened at the time. So, we built a user interface on the web. So, people put things into a text box. Then we take that data. We can't just send it to TD Ameritrade because at the time it didn't have like an API or like you can't like put the thing into a database with account opening and all the households. We took that data and we sent it to a PDF converter that manually took that data and like stamped it onto a scanned TD Ameritrade account opening document, which is like 55 pages. Right. So, I have a human I have a person who's spending their job is to like map the fields and the account opening document for the broker dealer. Right to like this web form that we're doing. And of course, every quarter the custodian changes their paper form. Right. So, you constantly have to redo your software of how you take your useful text data and then stamp it onto a paper document. And then you take that PDF that you've stamped the data on. And then you put it into another plugin, which is I love it so much. It's an internet fax machine, so you have to fax the PDF.
You fax the PDF to like a back office in new Jersey where it, like, prints out. And then there's a person sitting there. You can paint the picture for yourself. There's a person who picks up that printed out fax with the thing from the internet and so on, and then takes it and goes over to their computer. Their computer is running some back-office system, which is, I assume in a nuclear bunker somewhere, you know, with a green screen and has to type in the information from the printed-out facts into their back end database. Okay. And that is digital onboarding. However, you obviously have typos which are called breaks. So, the person in the back office at TD is like typing your name wrong. And so, like the money you sent to them, you know, you wire them some money and then it like doesn't land in your account because the name doesn't match the thing.
So then both TD Ameritrade and the middleware software provider, which was us, needs to have a human being employed to check these breaks every morning to see if the money has landed or not. Okay. And that is digital account onboarding in 2012. And that is also why it was the correct thing to build your own broker dealer. So that story number one, story number two people should remember this is synapse. You know, so synapse is a failure of two years ago. This is also why I think like fintech is not dead is the wrong word, but it's sort of like has reached its web, two, fintech has reached its potential, and Web3 is necessary to move forward. Right? So, Synapse or like this whole like embedded finance theme was like a response to calm and data aggregation. And like Plaid, these companies that say, what we're going to do is we're going to crowbar the data out of core banking systems or brokerage systems, and then scotch tape it together into, you know, like databases that scale.
You've got small community sized banks that are willing to take risk and like pop open their infrastructure to middleware platforms like synapse. Synapse then resells that data access to folks like Mercury and a whole bunch of other neo banks. And everybody is like pretending that this is open banking and, you know, like embedded finance works. I had the founder of synapse on the show to talk about this, and he's hugely maligned, you know, probably for good reason. But he's certainly not the person responsible for what happened. And what happened is that, like 50 million disappeared from their systems and from the bank systems. And like, everybody lost the money and none of the ledgers connected. We later learned that it's like the way synapse got the information to sync the ledgers was a CSV upload that somebody from the bank would get from Jack Henry's core banking system, and then upload that into like an FTP, like, drop the CSV file here in the synapse interface, and some back office person at this bank who's getting paid, you know, 20 grand a year, just like didn't drop some of the CSV because they're like, oh, they don't need that. And it's just like, and you still have these people who are like, I don't know what blockchains are for, you know? and it's I don't know, it's pretty clear to me.
Yoshi Yokokawa:
Yeah. And I think like, that's the reason why we knew that we have to be a custodian ourselves. And that's why, like, we invested in a lot into, like basically this DTCC membership and, you know, like building our own ledger. So, we don't use those exactly that like brokerage or like those outsourced vendor system. Like that's what all the existing like incumbent, you know, guys do. Right. Like you like even though they have DCS in their custodian by themselves, but they're actually using someone else's vendor system ledger system. So how would you be actually in control of what you're doing? That is an extremely scary part. And that's the reason why, like, we knew that we had to completely internalize, you know, the license stack and membership stack and then also the tech stack as well.
And that's what we did. And I think like, you know, the banking, you know, away from the broker dealer side ourselves. You know, banking is kind of catching up, right? Because like synapse was on the evolve. And now like, there's a lead bank. And colon bank. And now this, Erebor Bank that's doing from the extremely ground up building, the, you know, membership and tech internally, everything, at least in a web two way. Or maybe for that Web3. I think like that is finally, I think what's happening, this fintech wave coming to the real financial services because like, you know, this custodian clearing settlement ledger, this is real financial services that we have to like, update and then like updating that will connect to much easier path from that updated digital to down chain. That migration is much easier as long as the industry and the regulation allows us to do that.
Lex Sokolin:
Absolutely. Yoshi, it's been wonderful having you on the podcast. If our audience wants to learn more about you or about alpaca, where should they go?
Yoshi Yokokawa:
Well, I'm, you know, open on the, Twitter as well. And then we are at the alpaca markets. You can pin us there as well. And but like Twitter Alpaca HQ. My Twitter is I y o s h i y o s h i. It's been amazing conversation and it's amazing to kind of have a conversation with fellow layman alumni here.
Lex Sokolin:
I still have a cup with the logo to prove it. Yeah.
Yoshi Yokokawa:
That's amazing. I have a t shirt.
Lex Sokolin:
Awesome. Thank you so much for joining me today.
Yoshi Yokokawa:
Thank you. Lex.
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