Multichain Expansion and Select Strategic Initiatives: Building Bridges That Do Not Burn
Article 7 of 7
- Selection of assets will be done across networks in such a way that each of our investors will get exposure to the whole suite of assets we have on all chains. Investing on different chains, and hence linking different networks, is our way of providing diversified exposure to our investor base. Our fund prices will be the same across all the networks where our investments are deployed.
- Use of bridges will be cautious at first and depending on asset flow requirements, and improvements to the corresponding infrastructure, we will readjust our fund transfer limits.
- Our all inclusive approach is to recognize the team and community as one group, our human capital. Essentially what this means is that we will not differentiate between the team and community but instead view them simply as different subunits or divisions within our organization.
The six articles [LINKS TO ARTICLE ONE, TWO, THREE, FOUR, FIVE and SIX] we have released thus far as part of the Eiffel release plan highlight the many innovations we are introducing over the next several weeks. In this seventh and the final article of the series, we will touch upon some of our strategic plans for the next several months and our motivations for choosing this particular set of initiatives. A key focus that will be highlighted are our efforts and the rationale for rolling out our products on different chains.
The invention of Bitcoin in 2008, and the subsequent launch of the currency in 2009, is no doubt a landmark event permanently etched in the history of technological innovations. This seminal event is opening frontiers that are set to transform all aspects of human interactions.
As the Bitcoin movement gained steam, adding supporters and gaining momentum as a substitute for money as we know it, many great minds deemed several improvements as being essential to enhance this landscape. Ethereum, which was conceived in 2013 and launched in 2015, provided a remarkable innovation in terms of making blockchain based systems Turing complete (or theoretically being able to do what any computer can do). This has now opened the floodgates for innovations seeking to add different aspects of business and human experiences onto the blockchain.
The funding needs for a new project, and innovators seeking capital for amazing novel ideas, are creating remarkable opportunities for investors. Though, the early days of Crypto investing are synonymous with huge swings in prices or volatility, security issues or hacks, and a lack of protective mechanisms for investors. This has stood in the way of wider inclusion of crypto currencies, and blockchain assets, in the portfolios of individuals who do not have the stomach for roller coaster rides and fatal accidents.
Enter Formation Fi. Our articles released thus far cover in detail the methodologies we are pioneering to make Crypto investing less risky, secure and accessible to everyone.
Our initial product, including risk parity components and a safe house, will become available on ETH, and BSC. We are also checking the possibility of an early roll out on Polygon. As emphasized earlier, the products will be launched in phases so that we can thoroughly test on each platform and resolve any issues related to each blockchain system. These three have been chosen initially given the remarkable progress they have made, the stability they bring to this space and the similarity they offer in terms of technological requirements. All three of them are EVM (Ethereum Virtual Machine) compatible, making it relatively straightforward to start using another of these platforms once a product is built for one of these chains.
That said: ETH with high gas fees, BSC with some vulnerabilities in its choice of validators, Polygon with scalability issues at times represent challenges that are inherent in any technology saga. Numerous small tweaks and entire redesigns of architectural frameworks are being undertaken with these networks and their future looks promising.
In addition, as our last article and the story of Sergey Bubka illustrates, human ingenuity has no bounds. Many innovators are learning from the insightful lessons offered by contemporary chains. Proof of work, as a consensus mechanism, already has a plethora of interesting alternatives. Massive efforts are underway to build platforms that address issues related to high transaction costs, low throughput, scalability and also to ensure that different chains have a greater degree of connections and interoperability.
We see this development of newer chains as a great possibility to find new and alternative investment opportunities. Selection of assets will be done across networks in such a way that each of our investors will get exposure to the whole suite of assets we have on all chains. Investing on different chains, and hence linking different networks, is our way of providing diversified exposure to our investor base.
To elaborate on this further, our fund prices will be the same across all the networks on which we are deployed. To arrive at a fund price, we will consider two factors: 1) our combined total value locked across all networks for that fund, and 2) the number of tokens issued for that fund across all networks. For example, if an investor invests $50,000 USD on only one network, say BSC for example, he / she will be getting exposure to the performance and diversification benefits of all the assets we hold across all networks in that fund. For an investor to do this by himself would be an extremely arduous task. For any one person to continually monitor such a portfolio spread across networks, and change it based on market conditions, would be almost impossible.
Solana, Fantom, Harmony One, Avalanche are some chains for which we have active plans to deploy our products and invest in assets on these platforms. Several other platforms are also on our immediate radar. As and when promising investment opportunities arise on newer chains, we will be prepared to monetize that.
From a network exposure point of view, the entire amount of funds under management will be seen from two perspectives: one is the network portfolio and a global portfolio that aggregates all of the network portfolios. We will monitor the weights of assets globally and strict risk management limits will apply to the global portfolio. This global capacity on each asset will be filled by positions on each network depending on how easily funds can flow between networks. The amount of funds we transfer across networks via bridges will depend on the capacity of the bridge that spans across networks, the relative gas fees of the networks, the amount of funds we receive, the asset availability, and the exposure we assign to each network.
Right now, “Bridges” built between various networks are both a “Bottleneck” and an “Achilles heel”. They limit the amount of funds that can move between networks and they also become an attack vector for hackers to target, resulting in the loss of funds. Hence our use of bridges will be cautious at first and depending on asset flow requirements, and improvements to the corresponding infrastructure, we will readjust our fund transfer limits.
There will be different degrees of correlation between prices across different chains depending on the extent of inter-connectedness between them. As the fund flow increases across existing chains, it is highly likely that the movements will increase in lock steps. The greater overlap between chains in terms of asset movements will also bring about the risk for a drastic drop in total value invested in on any chain, if that particular network starts to lose trust and get abandoned. Initially, frictions that will impede fund movements will serve the best interest of certain parties. But as competitive pressures erode the frictions, they will later exacerbate certain other risks.
Trials with small errors are the key to sustained progress. As product iterations happen we have to continuously assess what we have learned so far and look to make improvements. Huge mistakes such as Terra / Luna, unintended and unwanted as they might be, can be quite costly to the system. It is reassuring to see that efforts are being made towards a recovery and the community of blockchain enthusiasts are not deterred by this setback. This resilience is to be whole heartedly applauded. One of the core reasons why we wanted to create Formation Fi is to be prepared for such drastic incidents by incorporating more robust mechanisms. Despite the unfortunate losses for many victims it serves to affirm that better risk management principles, and the other benefits we offer, are sorely needed by the community.
Another set of bridges we will actively build are strategic partnerships to ensure that the crypto environment can be highly inclusive, and connect investing to several real world platforms, solving many problems that plague humanity along the way. These will be ongoing and we will focus on these initiatives once the main products are tested thoroughly and deployed.
Moving on to our investing activities and plans for seeking additional returns. Several overlay strategies will be added to our funds as time goes on and we will seek to benefit from any potential opportunities that open up. Our team of researchers and investment specialists will continually scour the landscape to identify ways to generate profits. The development of new networks, and derivative providers within networks, will enable us to use options as a hedging mechanism. This will help to protect from market crashes and can be used to reduce the risk in Gamma. Also, derivative strategies combined with rigorous risk management can help to gain additional returns. These will be considered for Alpha.
Further overlays can be based on specific allocations to sectors we see as promising. This would be similar to sector themed sub-indices or ETFs but within a larger grouping of assets. These developments will be part of Beta, including allowing investors to customize their preferences in a basket or theme. Initially we will only accept investments made in USDT and BUSD. Later, we will look at adding other means through which investors can participate in our investment vehicles.
DAOs (Decentralized Autonomous Organizations) are seen as the way forward for blockchain systems. The topic of the DAO can itself become a seven hundred part, or more, series of articles. But to summarize what we have done thus far, we have already taken a huge first step towards establishing ourselves as a DAO. Our core philosophy regarding this topic is that we will have similar principles, and the same group of people in our organization, for all our human touch points and to handle the policies for both the Team and the Community.
To the best of our knowledge every organization thus far, both within the crypto landscape and outside, has viewed employees and clients, including external stakeholders, as two separate entities. Our all inclusive approach is to recognize the team and community as one group, our human capital. Essentially what this means is that we will not differentiate between the team and community but instead view them simply as different subunits or divisions within our organization. The team and community will include all human (and perhaps, even non-humans at a later stage) actors that are participating in some aspect of our DAO.
We will have similar principles, but not the same ones, for all participants. Though, just like any other organization, we will have different sets of responsibilities and rewards for different departments within our organization. We will have different incentives, and guidelines, for the many different duties that members of our human capital perform. Surely, such a unique approach might bring conflicts that are inherent when attempting such a radical change. Our objective is to establish this unified paradigm as an intrinsic part of our culture and revise policies to ensure conflicts are minimized. Much further down the road, we will discuss more about our approach to creating a DAO in a separate article.
Blockchain technology has now created a fascinating marketplace where any-one can participate from any-where and at any-time to trade any-instrument. Preparation for the unintended and unwelcome outcomes, by coupling rigorous risk mitigation with continuous innovation, will ensure that this technology fulfills the massive potential it holds. The possibilities are endless.
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