Overview

This article talks about Friktion automated call option strategy based dApp based on Solana blockchain. The dApp is basically allows the user to harvest risk adjusted returns in the form of Solana blockchain supported token in a decentralized environment.

The potential users of this dApp can be decentralized autonomous organizations (DAOs), individuals and traditional institutions too.

Friktion was backed by a host of marquee investors for their endeavor to bring this product up and running. The cumulative capital raised was about $5.5 million as per reports.

The set of investors who invested in the product include Jump Crypto, DeFiance Capital, Pillar VC, Libertus Capital, Delphi Ventures, Sino Global Capital, Tribe Capital, Castle Island Ventures, Dialectic, Petrock Capital, Solana Ventures, and other angels.

Basics requirements

The basic requirement to get on board is to have a Phantom wallet and a desktop environment for better operation. That’s it!

Bird Eye view

The Friktion landing page looks something like this. Look at that value locked and the compounding benefits it is about to have! (Please do a thorough research and get your hands dirty around how DeFi processes work and the allied risks before jumping in!)

WTH is a volt?

The ‘Volt’ is Friktion’s native investment product that gives a risk reward for its users. It is suitable for maintaining DAO treasury, an individuals call options portfolio or even for traditional institutions who are looking for an risk optimized profile.

Each Volt has a host of Solana environment supported tokens. Each Volt is optimized for specific risk.

The three types of Volts and its features are described in the image above.

Socials to follow for community updates

First and foremost connect your wallet to login. That’s like logging into your profile on the dApp.

Now before doing anything, like anything, check out for their community profiles at the bottom of their landing pages which look like this.

I would request you to follow them, in order to get latest updates about their product features. You can drop your queries in discord to get it resolved first hand!

WTH is a call option?

A call option is a smart contract on the blockchain that gives the right to the buyer to buy the asset you hold when it hits a certain price. This price is called the strike price.

Friktion uses European style of contract settling options currently (keep checking for the updates in its community.) The options settlement is powered by Inertia, Solana’s leading options settlement dApp.

A user holds a certain asset and simultaneously sells a call option on the asset (termed as covered calls, as it covers your asset) by using Friktion. The money that is generated by selling the call option on the asset you own becomes your yield! This yield is called the premium. The risk premium earned generated cash flow.

There will be three possible instances that may take place, at the expiry of a contract. Let’s say you are depositing 1 SOL in Friktion Volt, worth about $200. Let’s understand this investment in three possible scenarios.

1st scenario: SOL price has not changed post the time of expiry.

In such case, the contract is sold with risk premium itself, then the yield on the SOL invested is 10 divided by 200 that is 0.05 SOL earned on investing 1 SOL, that means 5% yield.

2nd scenario: The strike price falls to a lesser price than the invested price, $150.

Even though the price dips to $150, the covered call option being sold generates $10 yield which is about 0.07SOL in instantaneous value.

So the net SOL return is 1.07 SOL (1 SOL investment plus 0.07 SOL yield).

Scenario 3: The call option is exercised above the strike price.

Suppose the SOL price is $$200 when invested and the strike price at which the call option is sold is $235.

The returns earned on the SOL as the SOL is sold at higher price is

200/235=0.94SOL (SOL amount after the price hike) + 10/235=0.4 SOL, a total of 0.98 SOL.

So net profit/loss in above case is (0.98-1)= -0.02 SOL, meaning a loss of 0.02SOL.

If we consider the dollar value of the chain, during the transaction, it went up by $230.

How does the Friktion architecture work?

All I can say is if you are smart enough and know the rebalancer on the side, you have understood how the decentralized price pool for the user works!! Have a look below

Now, for the reader to get things better and for me to keep assimilating things in the tokenomics and the way forward, I am taking a break at this point on this blog. Please have a look around on the internet about this product on Solana and let me know how did you like the flow of the article?

Thank you reading until here! Care to share it? Please do it from here!

I am still learning to write things in flow and attain ONE!!

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