What is Friktion?

Friktion is Solana’s premier risk-adjusted yield strategy protocol.

Portfolio management nowadays can be tricky. However, there are many web3 projects out there that are ready to help those who desire to enter the crypto industry in managing their funds. Aside from that, the security of a trader’s funds is the primary concern as there are many fraudsters out there ready to take your assets from you.

Background

Friktion provides full-stack portfolio management designed to outperform market cycles. Additionally, it provides strategies for risk-adjusted returns for DAOs, individuals, and traditional institutions.

Its key contributors have backgrounds in proprietary trading and numerical research firms (commodities, treasuries, volatility products, crypto assets), full-stack blockchain engineering, monetary policy, and UI/UX design. Since its inception in December 2021, the site has accumulated over 15,000 users and transacted approximately $2 billion in volume. The protocol’s goal is to provide long-term sustained decentralized finance (DeFi) yields.

What is Friktion?

Friktion is Solana‘s premier risk-adjusted yield strategy protocol. Friktion’s main products called Volts, serve as the foundation for DeFi portfolios that can outperform market cycles.

Volts are chosen by users based on their risk tolerance, as they deposit assets and earn passive returns. Circuits are the DAO Treasuries portfolio management’s proprietary risk structure.

Users can utilize the project to build a portfolio that provides returns in bull, bear, and even crab markets. Volts can be used to communicate directional ideas or to passively allocate to market-neutral strategies.

Friktion’s staff is committed to a multi-chain future, recently launching ETH and AVAX deposits via Wormhole. All cryptocurrency users have the right to easy yet effective portfolio management that does not require a lot of time or skill.

Friktion Products

Volts

Market possibilities drive passive, quantitative techniques that generate returns. Volts enable anyone to gain access to methods designed for principal protection, yield generation, and volatility.

Friktion’s deposit and withdrawal processes are complicated. However, the intricacy exists for a reason: Friktion is meticulously developed to match specific restrictions.

Friktion Volt tokens, like LP tokens, represent a pro-rata share of the pool’s owner. These share tokens are theoretically a “rebasing token,” which means their value will fluctuate in relation to the deposit token.

Because these fTokens may be used in AMMs and as collateral in lending platforms, this increases the capacity of protocols to compose on Friktion. Because of this adaptability, the app has a “Mint Shares” feature.

These Volts are currently accessible on Friktion:

Volt#01: Income generation (fcAsset)

Its Volt strategy is selling covered calls. It has a mild bullish to bearish market environment.

Volt#02: Sustainable stables (fpAsset)

Its strategy is selling cash-secured puts. This Volt has a bullish market environment

Volt#03: Crab Strategy (fcrabAsset)

It monetizes volatility yield with a delta-hedged short power-perp position. Its environment is range-bound.

Volt#04: Basis Yield (fbasisAsset)

It tackles on Arbitrage spot vs perpetual prices with a delta-neutral basis position. Its market has negative funding rates on a long basis while positive on the opposite.

Volt Deposits and Withdrawals

Users can deposit assets into selected strategies at any moment, which will be deployed when the next Epoch begins. Volt Tokens are given to depositors as proof of ownership in the Volt. This serves as the basis for the accounting system in Friktion’s Volt Program. A simple way to measure performance in Friktion is tracking the Volt Token price alongside the Price & Strike charts.

Deposits made during an active Epoch are considered Pending Deposits until the next Epoch begins when they are deployed into the strategy.

When a pending deposit becomes a non-pending deposit, a user can mint Friktion share tokens in the amount to which they are entitled. Minting is optional and incurs no withdrawal fee. Once a user has earned a particular number of share tokens, the amount they receive does not vary. 

These share tokens exist in the user’s wallet and can be seen by them. Existing share tokens, such as Solscan and Phantom, are already labeled. It usually takes a few weeks for new volts to have their share token labels appear on other Solana apps.

It usually takes a few weeks for new volts to have their share token labels appear on other Solana apps. This phase will automatically mint share tokens before returning them to the Friktion protocol. The record of the user’s pending withdrawal exists in the Friktion smart contract storage as a number. After the pending withdrawal is executed, the user’s deposit +/- PnL from the Volt can be claimed.

Pricing and Settlement

Friktion is powered by a best-price engine that captures the best options, futures, perpetual, and spot pricing across on-chain exchanges (CLOB, AMM, OMM), off-chain market makers, and between Volts while being risk-neutral, which means Friktion does not warehouse market risk.  Deposits into Friktion yield fTokens, which indicate Volt ownership.

Volts rely on the infrastructure listed below:

Channel RFQ: Solana’s native Request-for-Quote auction system uses blind Dutch auctions to connect Friktion Volts and display liquidity on Options and Spot trades. Powered by Serum.

Entropy: Mango was used to create a power and volatility everlasting exchange.

Inertia: Friktion Volts #1 and #2 use European-style cash-settled options primitives. Simply put, Inertia permits Volt#01 depositors to earn PnL in the underlying asset (ie SOL) and Volt#02 depositors to get PnL in USDC.

Jupiter Aggregator: DEX Aggregator for Solana, swap any asset across Solana DEXs.

Realms (SPL-Governance): Solana DAO governance tooling

Who uses Volts?

Passive investors and liquidity providers: Portfolio management that is automated in order to generate returns over market cycles. Moreover, users should Provide liquidity to their chosen yield farms while hedging their Impermanent Loss.

Active traders: Use options to trade and earn on your favorite DeFi assets by using products like covered calls, protected puts, iron condors, and straddles. Mispricings of assets and their volatility can be arbitraged.

DAOs: Identify and manage your protocol’s and Treasury’s risks, allowing the team to focus on community building. Custom Liquidity Mining, could better encourage long-term donors.

fTokens

Friktion’s native share token is fTokens. It continuously accrues Volt and compound yield returns to token holders. fTokens are eligible for reimbursement from any volt once the volt in which a user placed expires. The tokens can be transferred, redeemed for a volt deposit token, and traded on a Serum market or AMM.

Lightning OG

Friktion’s collection of 2,222 commemorative non-fungible tokens (NFTs) is known as Lightning OGs. Lightning OGs are Discord members that have been with the project since the beginning and have helped us beta test on devnet and provide feedback on product decisions since day one.

As gratitude, the first 2,016 Friktion users were given 2,016 NFTs (for free). The remaining 206 were maintained in the Treasury pouch for grant requests and marketing activities.

Conclusion

Friktion has been around for a number of months now. The team behind it is working on giving its users complete and secure tools that help with their trading strategy. More users are now joining in Friktion’s development as they recently launched Volt #4 and Volt#5 is still in the works. Aside from that, the Friktion team will continue on adding more exciting products to the project that will entice more potential users to join the protocol in the future.