Start generating income: app.friktion.fi/income
NOTE (May 2022): This launch article may contain outmoded information about the protocol’s structure. For most recent information, please visit docs.friktion.fi and bring any questions to discord.gg/friktion.
During the last two weeks, thousands of Volts were taken from the hands of Zeus during Friktion’s DevNet. This feat, known as the Original Thieving, required a unique set of highly skilled degenerates and HODL’ers known as Lightning Thieves.
In response, Zeus has declared MainNet be opened imminently for all.
As everyday builders of Olympus, the core contributors have complied. Not in haste, but in pride to open our construction to our fellow citizens. The Lightning Thieves have taken their opportunity to deposited nearly $6,000,000 worth of SOL and BTC into Volt #01’s covered call strategy — now we welcome all to Solana’s home for sustainable yields — app.friktion.fi/income.
How does it work under the hood?
SOL and BTC deposits for the First Epoch are active until Friday, December 24 12:00am UTC, or the Volt hits capacity (100,000 SOL and 100 BTC). In this window, users can instantly deposit or withdraw funds. On Friday, fully collateralized SOL and BTC call options expiring on December 31 (1 week out) are minted and sold through Friktion’s best-price auction mechanism, a competitive system which aggregates on-chain options orderbooks (Serum) and off-chain market makers (Friktion native system) to deliver users the best price. Once options are sold, the Volt collects the call option premium (”yield”) while holding the option to expiration. Another way to think of this is selling significant upside volatility to collect recurring income!
Check out this video below from Genesis Volatility, a Friktion partner and industry leader in Crypto Options Analytics, which dives deeper into how Covered Calls work:
Friktion is continuously improving our strike selection and Volt design process to optimize for (a) long-term users looking to earn via set-and-forget strategies across many Epochs and (b) opportunistic traders looking to participate at specific market conditions. Stay tuned for our simulation and backtesting results on optimal strike selection and fair value volatility models.
Still curious? Hop in our Discord and ask away!
ROI is the new APY
Sustainable returns drive long term DeFi adoption
This launch marks the inauguration of Volt #01 built for sustainable Income Generation, using the risk premiums in options (calls and puts) to monetize sources of “real yield”. Friktion’s Volts are uniquely differentiated from typical source of DeFi yield which are either (a) token emission based, requiring users to provide liquidity into an AMM in return for transaction fees and reward tokens from the exchange or (b) floating or fixed interest rates from borrow/lend platforms.
During our research we found that upwards of 70% of token rewards received from providing liquidity into a pool (LPing) are sold within the first 72 hours of the pool’s existence (Nansen.ai). This generates a negatively reinforced flywheel of long-term liquidity problems: (i) Significant sell pressure, as most liquidity is coming from mercenary TVL (ii) Misalignment between Protocol and LP and (iii) No buyer of last resort during times of high market uncertainty, often measured by implied volatility. (Olympus Pro)
Traditional corporations often referred to this as Customer Acquisition Cost (CAC), or the amount of money spent to acquire a new user. Similarly one can view DeFi protocols spending (through liquidity mining) significant amounts of their native token (measured as a % of float/total supply vs time) to bootstrap liquidity and acquire users. However, front-loading token emissions (CAC) often doesn’t incentivized new token holders (users) to stay for the long-term. As Friktion’s DAO grows, such decisions around user incentives are at top of mind. We encourage you to share your thoughts in our Discord (and soon Governance Forum)!
What’s next?
Volt #01 is just getting started — we’re actively adding support for new assets and strategies that are tailored to income generation. Volts #02 and #03 architecture is underway and will unlock Volatility as an asset class within DeFi. As we ship these Volts, we’re laying the foundation for DeFi’s first Automated Portfolio Manager (APM), built to perform across market cycles.
Genesis Circuit has begun — the first cohort of DAOs utilizing Volts and the APM for Treasury Management, currently focussed on income generation with Volt #01. We’re proud to welcome the first member , InvictusDAO, who will begin with deploying 20% of their mSOL Treasury holdings into the Circuit. Read announcement here.
Is your favorite Solana DAO looking to strategically deploy your Treasury assets? Reach out on Discord or Twitter if you are interested in being part of the Genesis Circuit. For future Circuits, we will introduce a Voting-based mechanism. Stay tuned for a deep dive into Circuits!
FriktionDAO deployment is next as we integrate with DAO tooling being built out by Tribeca, Squads, Mango, and SPL-Governance.
Formal audits are beginning in a few weeks while a mix of Solana developers and security specialist are code reviewing so we can open source our codebase as soon as possible!
We’re excited to have you join us on this journey and would love to hear from you! Interested in contributing to Friktion? Join one of our Taskforces and let’s build the future of finance together.
Website: app.friktion.fi
Twitter: twitter.com/friktion_labs
Discord: discord.gg/beCbA5VpJu
Medium: friktionlabs.medium.com
Documentation: docs.friktion.fi
