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Friktion Research

Introducing Volt#04: Basis Yield

by: Friktion Core Contributors

In markets like these, uncorrelated, market-neutral yield generation strategies are critical to portfolio performance. Today we’re excited to launch Friktion’s newest product — Volt#04: Basis Yield!

👉 Get started: app.friktion.fi/basis
📕 Read strategy documentation

Strategy

Volt #04 generates returns using automated delta-neutral basis arbitrage strategies, monetizing the difference between spot and perpetual prices.

Currently, Volt#04 offers a long basis strategy which longs SOL-PERP and shorts SOL (borrow+sell) to delta-hedge (±1%). This Volt performs best in negative funding rate environments, when perpetuals are trading below spot. Users deposit USDC which is deployed on Mango, Solana’s leading perpetuals exchange, powered by Serum.

Similar to other Friktion Volts, once an Epoch begins, the target position is deployed using the deposited assets in the Volt. Epochs are resolved weekly on Wednesday night (UTC) by default. New epochs are automatically triggered when the amount of pending deposits exceeds a threshold — this is done to minimize price impact from adverse selection. NOTE: Epochs with large amounts of incoming deposits/withdrawals may take longer than normal to resolve to minimize price impact and reduce slippage. During the time that the Volt is rebalancing, no new deposits can be made.

👋 Are you a new to DeFi, Friktion, or Perpetuals? Be sure to read Part 1 of our Perpetuals series below for an overview of the basics:

Volt#04 capacity is currently at $7m USDC, a threshold determined by Execution criteria which will be highlighted in a coming article — a factor driven largely by available market liquidity. Explore the Mango Markets analytics tools here:

SOL-Perpetual Funding Rates and OI (Source: Mango.Markets)

Risks

  • Funding rates: The current version of Volt#04 collects funding in negative funding rate environments. In extended positive funding rate environments, the Volt may suffer negative returns.
  • Slippage: Delta exposure is possible if an imperfect hedge occurs due to slippage from Volt rebalances.
  • Borrow rates: Since the short spot leg of Volt#04 borrows in order to sell short, elevated periods of high borrow rates can adversely impact Volt performance.
  • Smart contract risk: Mango v3 is in public beta and are unaudited software. Friktion’s Volt#04 uses a separate program from other Volts and is unaudited.

Execution

The below flow diagram highlights the processes involved in Volt#04 from the user perspective, risk management layer, and exchanges. If you’re interested in contributing to the execution model, drop us a line.

Friktion Volt#04 flow diagram (Source: Friktion Docs)

Next steps

In our recent partnership announcement with Paradigm, the largest CeFi crypto liquidity network, we highlighted bringing Institutional Liquidity to DeFi. Stay tuned to learn how this is expanding beyond options with Volt#04!

We will be publishing our Research on funding rate arbitrages, execution optimization (risk management), and topics related to scalability of Volt#04.

Resources

The Quest for Yield: Market-Neutral Strategies in Crypto by Sanat Rao
Volt#04 Documentation by Friktion Core Contributors
Track funding rates across Centralized Exchanges here
Track the Volt’s Mango Account here

Questions? Feedback?

Find us in Discord 24/7 — seriously, we’re always around! Don’t hesitate to drop us a message if you have any questions ⚡

If you’re experiencing any issues, kindly create a Ticket in the #support-ticket channel!

About Friktion

Friktion is Solana’s leading protocol for risk-managed yield strategies. Friktion’s 4 core products, known as Volts, are building blocks of DeFi portfolios that can perform across market cycles. The platform has amassed over 17,000 users and traded >$2bn in volume. The protocol’s mission is to enable access to long-term sustainable DeFi yields.

Learn more at app.friktion.fi

Media Inquiries: Email us at team(at)friktionlabs.com

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Friktion’s Quantitative Research arm, dedicated to navigating DeFi risk markets

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Friktion brings high quality portfolio construction and dynamic risk management to DeFi.

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