When it comes to traditional financial services, asset management is a core pillar. From high-net-worth individuals to retail participants, a significant subset of the population depends on the external expertise of coveted fund managers. After all, only some have the time, energy and know-how to tackle the complex investment world. Mutual funds, pension funds, hedge funds, private equity funds/venture capital funds, portfolio management services, thematic baskets of stocks etc., are all various ways market participants delegate their capital and rely on the prowess of fund managers to potentially provide risk-adjusted outsized returns.
Therefore, it shouldn’t come as a surprise, and with the advent of DeFi, it would be a matter of time before someone attempted something similar for the crypto folk on the blockchain. Factor desires to be the answer. Factor aims to democratise & decentralise asset management. The goal is to provide gigabrains with a platform to showcase their abilities and build unique DeFi native financial instruments. Factor is building infrastructure for managing digital assets in a modular way, enabling anyone to establish unlimited financial markets.
It goes without saying, but there are numerous advantages to building an asset management protocol. It will allow DeFi participants to gain exposure to relatively risk-averse strategies potentially, and more importantly, an opportunity to handpick a strategy based on their liking – from a host of innovative and interesting options. Furthermore, it’ll allow fund managers i.e. crypto connoisseurs, to monetise their skills and earn performance and management fees. I cannot think of one reason why such a protocol shouldn’t exist; trust me, I’ve given it enough thought. The potential use case is as clear as day.
Apart from individual participants, from Factor’s perspective, another key consideration that will present itself as a massive opportunity is to service DAO treasuries, protocols, and other DeFi native funds.
These large funds and treasuries are always on the lookout for deploying capital in varied DeFi strategies of different risk tolerances. The total addressable market from the consumer perspective is huge. Moreover, the gigabrain strategists and creators will be attracted and would want to leverage this opportunity and provide their services to these institutions. This will create a win-win situation for the institution, strategy creator and Factor.
From a standalone protocol’s perspective, Factor will allow novel solutions that will revolutionise how they think of liquidity and volume. Through Factor’s various suite of products (you will learn more about them), protocols will be able to aggregate liquidity and create various strategies to incentivise their users. This will inadvertently help the protocol in attracting more TVL and volume. The users are attracted too, with an all-in-one solution.
In this article, I intend to explain the current problem, what Factor is, how the protocol works, the features, the potential use cases, the FCTR token, the FactorDAO and much more.
The Current Problem
The nature of DeFi is such that it is incredibly complex to build automated complex strategies. We’re still in an early stage, and the market is fragmented. Executing and optimising these strenuous strategies is a tall order. This limits the large-scale adoption and thus hampers the potential of DeFi.
The major roadblocks are due to the following reasons:
- Siloed protocols
- Technical barriers
- Complex user flows
- Lack of transparency
- Inability to factionalise
Factor is building to solve these core problems. Now that’s what I like to hear!
What is Factor?
Factor can be thought of as a modular decentralised asset management protocol on Arbitrum. At the time of writing this article, the protocol is yet to launch on mainnet. The platform allows anyone to discover and manage a variety of digital assets. Users can mix and match these yield-bearing assets, tokenised baskets, and derivatives to create innovative and unique portfolios and indices. Factor provides all the building blocks that you’ll need.
As per their website, they define themselves as “The Building Blocks of Asset Management”. Factor’s DeFi infrastructure offers the necessary tools for strategists, builders, and market participants to establish new markets.
The main product offerings will include:
- Tokenised Baskets: Self-custodial tokenised baskets of crypto, thematic indices and more
- Yield Pools: Permissionless, non-custodial yield aggregation for borrowing and lending
- Derivatives: Create, settle, and trade decentralised derivatives on any underlying asset
Now, this is some fun stuff! I’ll explain these in more detail later.
Factor is changing the way on-chain asset management is made possible by building a platform that combines important DeFi primitives and liquidity. The platform requires no coding skills. This enables asset managers to develop new products, strategies, vaults, attract TVL, and earn revenue. It also makes it easy for investors to deposit their crypto and earn yield with just one click.
The protocol will integrate multiple DeFi assets under this one no-code asset management platform. The workflow will be intuitive, allowing users to build their strategy, set their management/performance fees, and that’s it. Factor will also support permissioned or permissionless vaults for any DeFi protocol, treasury or individual. Finally, as I alluded to earlier, users will be able to create novel assets to drive TVL, hedge positions, generate returns and earn fees.
Under the hood, Factor relies on some impressive heavy-duty tech to make their dream possible.
Factor’s infrastructure for tokenized vaults utilises the ERC-4626 token standard, which was officially accepted by Ethereum in the last quarter of 2021. This standard provides a versatile framework for creating vaults, but the default state does not enable the use of multiple assets. Therefore, the Factor devs made minimal but significant changes to enhance the smart contract’s features and versatility, allowing creators to incorporate multiple supported tokens into the vault, which greatly increases the potential use cases. You can learn more about ERC-4626 token standard here.
The protocol will be able to support any conceivable complex strategy that can be represented by an ERC-4626 token. Furthermore, this implementation allows for a simple and secure representation of vault share without any rebase inflation. Also, the protocol will enable multiple in-house, partner protocols or community strategists under one roof.
Use Cases, Features & Key Participants of Factor.
I briefly touched on the three primary use cases earlier, now let’s dive a little deeper.
Tokenised Baskets on Factor.
The introduction of tokenised baskets enables a seamless method of accumulating AUM and creating an on-chain record.
Through a non-custodial protocol, creators can launch tokenised baskets while retaining full control of their assets, which are held in tokens minted by the platform. Only the depositor has access to the funds, and they can also use the basket token to generate returns within the Factor ecosystem.
Factor allows for the creation of fully collateralised baskets containing any type of underlying asset, which can interact with other protocols within the Factor ecosystem, providing treasury managers and investors the opportunity to maximise their assets’ yield potential.
Tokenised baskets offer investors the chance to invest in a variety of asset compositions, from passive index exposure to actively managed thematic strategies, and are represented by a token distributed among depositors. It’s that simple.
Factor provides performance and risk metrics to assist users in evaluating the available baskets according to their preferences.
- Easily create a tokenised basket, containing any kind of underlying asset – cryptocurrencies, carbon credits, tokenised commodities, yield-bearing tokens, and more
- Trustless & permissionless
- Passive & active strategies
- Flexible fee structures set by the creator
- Third-party integrations with AMMs to enhance liquidity
- Connectivity with Factor’s lending pools enables short-selling
Yield Pools on Factor
The protocol also allows for easy deployment of decentralised pools for lending and borrowing, which can be customised to suit any risk profile.
These pools are non-custodial and represented by dedicated tokens, and their isolated nature keeps the risk contained within the pool. The protocol also enables the creation of permissioned pools, which can be used for managing DAO treasuries.
Users can supply and borrow assets in various yield pools, and collateral requirements are determined by each pool’s predetermined collateralisation factor. Liquid assets are more easily liquidated and are better suited as collateral, while illiquid assets may only be accepted as collateral in small amounts.
Essentially, these are akin to your traditional DeFi lending protocols, but with the form factor of delegation and asset management for yield maximization.
- Permissionless creation of non-custodial lending pools
- Caters to all risk profiles through unlimited customisation
- Creators can create permissioned pools for KYC or partnership purposes
- Compatible with any yield-bearing asset that is supported by a pricing oracle
Derivatives on Factor
Factor is developing a decentralised, open-access platform for the creation, settlement, and trading of derivatives on any underlying asset without the need for trust or permission.
The infrastructure also enables the origin of derivatives on tokenised assets in the real world (RWA), such as physical commodities, securities, and carbon credits, making it useful for a diverse range of creators and strategists.
The platform allows traders to hedge their positions and execute market-neutral strategies using baskets and tokens originated on the platform. Examples include perpetual swaps on carbon baskets launched on the tokenised basket protocol, or buying futures on community-generated thematic indices like DeFi, Privacy, or Metaverse.
Additionally, it will be possible to use algorithmic trading bots for executing strategies such as delta neutral or arbitrage. Furthermore, interest rate swaps will allow users to hedge interest rates on deposits and loans, and the derivative contracts will also be issued a token that can be traded on secondary markets. The platform will allow for the use of any stablecoin or liquid ERC-20 token as collateral, and it will be held in a reusable escrow until the terms of the contract are met.
The architecture will allow for the creation of CDS contracts, which can be used to insure against stablecoin depegging.
Factor plans to launch the derivatives functionality in two phases, starting with the launch of the ability to buy and sell options on highly liquid tokens such as WETH and WBTC, particularly suitable for treasury managers during times of high volatility. In the second phase, the derivatives offering will be further developed to enable the creation of any derivative on any underlying asset.
- Trustless & permissionless
- Supports any ERC-20 token or stablecoin as collateral
- Create endless derivatives using an intuitive front-end
- Compatible with any underlying asset and pricing oracles
- Optimistic oracles may be used to prevent data feed manipulation
- The framework encompasses most types of derivatives, including options, futures, and CDS
In summary, as you can perhaps now understand, Factor is an ambitious and all-encompassing project.
The following key participants will want to make use of Factor:
- Asset Managers
- Frictionless AUM building
- On-chain track record
- No-code yield aggregation
- Custom strategies and assets
- Partner Protocols
- Integrate their assets for wider exposure
- Create vaults to generate additional TVL
- Grow revenue via fees and token incentives
- Stake FCTR token to boost rewards and revenue
- Treasury Managers
- Secure DAO treasury management
- Consensus-backed permissions
- Wide range of investment strategies
- Manage and hedge risk via derivatives
- Exposure to a wide range of opportunities
- Passive and active strategies
- Gas efficient
The underlying thesis is that Factor will act as a broad aggregation and liquidity layer for DeFi funds, DAO treasuries, protocols and individuals.
It will offer a platform for budding asset managers to build novel strategies. It’ll help partner protocols in integrating their native assets for exposure, in the process attracting more TVL. It’ll help treasury managers by helping them secure the DAO treasury. Finally, it’ll help retail participants as well with exposure to a wide variety of strategies. You get it!
FCTR Token, Utility, Public Sale & Tokenomics.
The FCTR token will be the native governance token of the Factor DAO. The token will also be used to help bootstrap liquidity, as it’ll be awarded as a rewards token as well. It’ll also serve as a utility token, underpinning the entire Factor ecosystem.
At the time of writing this article, the token hasn’t had a public sale. As such, it’s a pre-mined token. However, details regarding the public sale are known.
veFCTR: Staking & Utility
FCTR holders have the ability to stake and lock FCTR and receive veFCTR (vote-escrowed FCTR). This mechanism is similar to the veCRV implementation. Holders of veFCTR will get two major benefits, and those are:
- Governance rights to direct protocol fees and emissions
- A 50% share of platform revenue
The veFCTR tokens received for locking FCTR are non-transferable, and their amount gradually decays until the locking period expires and the user can reclaim their original FCTR. This is the standard stuff, I’m sure you’re all aware of by now.
The primary focus was on ensuring that tokenomics were designed in a manner that benefits FCTR lockers and generates real yield for a sustainable DAO ecosystem, with genuine revenue and profit, returned to DAO governors. Thus, aligning incentives between all stakeholders.
The public sale will begin on 20 February 2023 at 18:00 UTC and hosted on Camelot DEX on Arbitrum. 10% of the total FCTR supply will be made available, and it will be distributed using a fair launch price discovery model.
A 5-day price discovery auction will determine the fluctuation of the FCTR token price based on demand. Each participant must make their own determination of the value of FCTR and form their own opinion when participating in the public sale.
The starting price for $FCTR will be $0.10, representing a fully diluted valuation of $10,000,000, and the final price will be established at the conclusion of the public sale on 24th February 2022 at 18:00 UTC based on demand.
All participants will pay the same final price for their allocated portion, ensuring fairness among all supporters of the Factor public sale. Instructions on how to participate in the public sale will be released prior to the event.
You can find more information about the upcoming public sale here.
StakeholderAllocationVesting ScheduleTreasury Reserve50%Released over 3.5 years as incentivesEcosystem20%Immediately available as incentivesTeam15%24 months linear vesting, post Token Generation EventPrivate Sale5%12 months linear vesting, post Token Generation EventPublic Sale10%100% post, Token Generation Event
Overall, the tokenomics look equitable and help in aligning the long-term incentives of all participants.
Speaking of tokenomics, note the following key points:
- Maximum capped supply of 100 million tokens, no tail emissions
- Over 80% of FCTR’s supply will be distributed directly to the community, 20% of the supply is allocated to the team, and private investors
Factor Open & Events
Factor’s dashboard will allow users to evaluate and compare baskets and pools based on various performance metrics such as absolute returns, relative returns and risk-adjusted returns.
Top-performing managers over different time periods will be rewarded by Factor. Managers can also showcase their investment skills by participating in one of Factor’s leagues. These leagues are competitions between aspiring asset managers and can be open to the public or private, created for talent recruitment or asset management outsourcing. Some leagues may require real trading, others may be based on paper trading. Some private leagues may require KYC based on league settings, while community-generated leagues are open to $FCTR stakers. Various rewards will be offered to the top performers in the leagues.
Factor Open is incentivised by the DAOs ecosystem fund and distributes FCTR as a reward, also serving as a talent acquisition event to identify future treasury managers or other roles within the community.
Additionally, protocols can create their own branded leagues, which will give them exposure to a wide community of traders, and increase volume and liquidity for their native token.
I must say that all of this sounds super exciting, and I can’t wait for the protocol launch.
As for the events, the team has teased some potential likely events:
- Yield strategies
- Token trading
- Multi-asset strategies
- Yield farming + token trading
- Metavaults (Akin to a fund of funds)
- Exotic strategies
- Automated strategies
The functioning of Factor is ensured by the DAO members i.e. veFCTR holders. The devs are of the belief that community governance and a well-structured process will be beneficial for the Factor ecosystem. By allowing members to take part in the protocol’s governance, the DAO will promote decentralisation and help the protocol reach new heights. Furthermore, the community will be motivated to increase the value of the protocol by developing new products, forming partnerships, and conducting research to assist the DAO in making informed decisions. The goal is to establish a lively, research-driven community that benefits all individuals who interact with the platform.
Community Strategy Incentives (CSI)
The Community Strategy Incentives program will be utilising the ecosystem fund, controlled by the DAO, to incentivise the growth of Factor. The following actions will be undertaken:
- Manage Factor Open
- Host hackathons
- Various grant programs for building on Factor
The management of the DAO’s treasury will be overseen by a council of members who possess relevant expertise, elected by the DAO. The main treasury will not engage in trading FCTR to avoid any conflict of interest. The council will be responsible for managing the profit-sharing pools of FCTR, utilising LP fees and revenue generated from protocol fees to acquire additional liquidity for FCTR. This results in protocol-owned liquidity, eliminating the need for external liquidity providers, with Factor providing liquidity to its own trading pair on DEXs and collecting fees from it. The pool will be managed by the Treasury Council.
The Factor team finally unveiled their launch plan last year in December. It’ll be divided into 3 phases, namely:
- Stake: Allow users to help bootstrap FCTR liquidity or lock their FCTR for veFCTR (the governance and rev-share token)
- Discover: The DAO will create its first set of vaults on the mainnet, allowing anyone to deposit into community-voted indices
- Create: Will unveil the complete platform and its no-code vault-building wizard.
It’s safe to say that I’m totally impressed with these devs and with what they’re building. Their attention to detail is commendable. They seem to have accounted for literally everything and then some. Whilst researching for this article and writing it, I felt they mean business. They’re not here to mess around.
I’m now looking forward to the public sale and the execution of the launch plan on the mainnet.
Well, that’s all for today, degens! I hope the article was helpful and informative.