Risk Parity Protocol | The Lite Paper V1.0
DeFi has revolutionized finance in lightning-fast time, democratizing and decentralizing a world which has until now been the domain of a select few. Retail investors — when they’re allowed to participate at all — have traditionally been kept on an extremely short leash, stacking the game in favour of institutional players such as hedge funds. DeFi is changing all that. At the time of writing, DeFi conducted across the three main DeFi chains (Ethereum, Binance Smart Chain and Huobi ECO Chain) accounts for over $64B in total value locked (TVL)*, and both figures are growing every day as new chains are added and more investment flows in. But despite its meteoric rise and the invention of novel financial instruments, DeFi is still in its infancy. This is clearest in the attitudes of DeFi platforms and their users, the majority of whom focus on maximizing short-term yield and see volatility as inevitable and unavoidable. In traditional markets, this approach has proven suboptimal at best and disastrous at worst, and there’s no reason to think crypto is any different. The most successful approaches to investing in recent decades have focused not on maximizing yield, but balancing risk. This strategy is exemplified in the Risk Parity movement, in particular Bridgewater Associates’ All Weather fund. By creating a diverse portfolio of non-correlated assets, the All Weather fund has been able to survive and thrive no matter what environmental factors are thrown at it. The Risk Parity Protocol from Formation Fi aims to bring this same success and stability to crypto investors by creating the first chain-agnostic, algorithmic DeFi yield strategy management platform driven by the risk parity portfolio management strategy. The Risk Parity Protocol algorithmically assigns and calibrates asset allocations across core asset classes and automatically configures and recommends a chain-agnostic portfolio of yield farming strategies tailored to the user’s risk profile. The protocol then mints index tokens that track the underlying DeFi assets and yield farming strategies with a periodic rebasing function. Instead of juggling a bewildering range of assets across multiple chains (and paying crippling gas fees for the privilege), users simply hold the index tokens which represent those assets. These index tokens can also be sold, bought or swapped like any other ERC-20 tokens, or even deployed into further yield farming strategies or added to a liquidity mining pool to further boost yield.The entire protocol is overseen by the $FORM token, a triple-utility token which provides profit-sharing, governance, and helps grow the DeFi ecosystem by harnessing the wisdom of the crowd to identify and fund the most promising projects. Formation Fi and $FORM are ushering in a new era of Smart Yield Farming.