Friktion is Trailblazing the Portfolio Management Space — Serum Stories #18
“Our goal is to provide individuals and DAOs the ability to quantitatively deploy a set of strategies and risk management tools which evolve with market conditions (time) and monetize volatility. ”
The new year is upon us, and things are just warming up for the Solana ecosystem. The Friktion team is here to set a blaze and burn away the traditional barriers and worries that come with traditional portfolio management.
It’s been mere weeks since their mainnet launch, and hot on the heels of Friktion’s first Volt products comes new offerings like their upcoming Circuits for DAO treasury management! What is the Friktion team up to? What’s the secret behind their constant shipping? Who is Friktion Finance? Read more and find out.
Get started with Friktion’s dApp: https://app.friktion.fi/income.
What’s up Next
1. — What is Friktion?
2. — Volts!
3. — Who benefits from Volts?
4. — Sustainable yields!
5. — Founding story
1. For those who are not already in the know, what is your 30 second elevator pitch for Friktion?
Friktion began as a team of quant traders and researchers coming into Solana to build the best risk management products in DeFi.
Our goal is to provide individuals and DAOs the ability to quantitatively deploy a set of strategies and risk management tools which evolve with market conditions (time) and monetize volatility. Within the rails of traditional financial services, such products have a few barriers to participation: (1) high net worth, i.e. $10M+; (2) portfolio managers discretion; (3) lack of transparency into risk methodologies. Friktion does away with these barriers and is making portfolio management more accessible and transparent to all.
2. Incredible. Can you tell us more about your Volts–your native investment products? (And Solana’s first structured products!).
Volts are strategies — quantitative and fundamental — that comprise the Circuits risk allocations.
The first two Volts are built around Income Generation (covered calls) and Sustainable Stables (cash secured puts). In market regimes with higher implied volatility, the first Volt provides users a cash flow stream and active position management through Friktion’s rebalancing and auto compounding tools.
The second Volt, moderately more bullish than the first, provides users the chance to earn downside volatility premiums from selling OTM cash-secured puts. If exercised, these transfer to the user as long spot at the strike sold (below spot at time of trade) net the premium collected.
The third Volt unlocks volatility as an easily tradable asset class within DeFi, giving anyone the chance to insure/hedge against market risk and monetizing turbulent market conditions.
The fourth Volt is a hedge against the “impermanent loss” or opportunity cost of providing liquidity into a CFMM (Constant Formula Market Maker) style AMM. This is a highly demanded feature from a lot of our community, so we’re excited to introduce it into the ecosystem!
Since our mainnet launch 10 days ago, we have brought in north of 1,200 users to the Friktion ecosystem with Total Value Locked (TVL) sitting around $66 million. Currently we support 12 assets — USDC, SOL, mSOL, scnSOL, ETH, BTC, LUNA, FTT, SRM, SBR, MNGO, RAY and two Volts!
3. Who do you imagine as the main users of Friktion? What can users look forward to?
If you zoom out and look at Friktion, we’re building for both active and passive users. Volts sit at the core of Friktion, giving any user the ability to make active capital allocation decisions in an transparent way.
Circuits, our next product, will connect Inductors (analogous to Liquidity Directors) who work for the DAOs and Institutional Asset Managers to design custom Volts to satisfy their unique risk-profiles. This will serve a key role in bringing new layers of liquidity into the Solana DeFi ecosystem.
This week, we are launching Friktion’s Genesis Circuit formally, so subscribe to our Blog for the launch update!
4. Your team is passionate about “sustainable sources of yield”.
This brings a lot of questions about the practice and sustainability of yield farming and how it’s traditionally done within DeFi.
Non-token inflation based yields are critical to DeFi becoming a long-term component of the financial system. 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)
As we detailed in our Mainnet Launch Post, we’re building with the view that ROI is the new APY, which is why we show our users a variety of return metrics on the strategies and are building out a Portfolio tool where they can track deeper exposure.
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 incentivize new token holders (users) to stay for the long-term.
As Friktion evolves into a DAO, such decisions around user incentives are at the top of mind. We encourage you to share your thoughts in our Discord (and soon, our Governance Forum)!
5. What’s the founding story behind the Friktion team?
Your team has been around for a while now–ever since the last Solana Hackathon. What was that experience like?
Alex and I quit our TradFi jobs a few months ago and decided to go full-time DeFi degens with the initial idea of building out what is now Volt#04, a hedge for impermanent loss in the CeFi OTC market making space. We quickly realized that this was too complicated for median DeFi users, so then decided to move up the stack and build out a set of more user friendly products which would provide liquidity and better pricing for this Volt!
Since then we’ve been lucky to have Jason and Birdy join our team! They’ve been massive contributors to our ability to ship the current suite of products while focussing on having a seamless UX that focuses on educating our users as well. Hopping from Airbnb to Airbnb together across the US after only first meeting them on Discord has been an awesome experience!
One of the most exciting part of Friktion has been the fantastic community formed in Friktion’s Taskforces, where we’ve brought together fellow quant traders, researchers, market analysts, and UX pros to build community driven products like Zaps, Friktion’s weekly market insights, Research pieces written entirely by our Research Collaborators! Discord has truly become a fantastic place for Friktion and we’re excited to continue growing! Thanks to all who have been a part of the journey so far :)
We hope you enjoyed the interview!
We would love to continue having these kinds of conversations with all the incredible teams building on Serum and sharing them with you. Just let us know who you want to read about next!
Read Serum Roadmap 2.0
Listen to Sam Bankman-Fried’s breakdown of the Serum ecosystem