A Polish startup aiming to bring risk parity portfolio management strategies to defi has raised $3.3 million in its latest funding round.
A medley of top-tier VC funds participated in the round to bootstrap the chain-agnostic, algorithmic yield-management platform. The private funding round attracted interest from the likes of Bancor, Huobi, Polygon, Kenetic, Kosmos, Spark Capital, and AU21, as well as X21 Digital, Momentum 6, GenBlock, GBV Capital, and Lotus Capital.
The Dawn of Smart Farming 2.0
Formation Fi algorithmically calibrates asset allocations across core asset classes like stablecoins, alphas, and betas, enabling users to easily profit from yield farming opportunities across the cryptosphere.
Yield farming, also known as liquidity mining, has been the dominant use case in defi over the past year. Essentially, it involves pooling cryptocurrency into a decentralized exchange (DEX) or AMM so that it can be lent to or traded by others. Users are incentivized to ‘farm’ with generous APYs and the prospect of reward tokens.
Formation Fi describes its new concept as “Cross-Chain Risk Parity Smart Farming 2.0,” and an enhancement on the current trend of yield chasing, wherein users busily explore opportunities across multiple chains, staking and unstaking several times a day.
Smart Farming 2.0 borrows heavily from the same risk mitigation strategies deployed by hedge funds on the stock market, without charging a fortune in management fees. The so-called risk parity portfolio allocation strategy is generally credited to Bridgewater Associates which launched the first risk parity fund in 1996, though Formation Fi charges just 5%.
Through Formation Fi’s radical auto-diversification algorithm, users can pursue multiple strategies and track their yield from a simple dashboard. The latter feature is made possible thanks to the protocol’s minting of an index token that tracks the underlying cross-chain defi assets and strategies.
This token, in turn, can be sold or swapped like any other ERC20 asset. A share of the platform’s profits will also be redistributed to holders of the $FORM token, which additionally provides access to Formation Fi’s Darkpool AMM pools.
In a recent Medium blog post, Formation Fi outlined seven guiding principles and promised to take “techniques and skills learned over decades on Wall Street and apply them through algorithms to defi” in order to “generate personalized funds that not only catch the market highs but also provide protection from the lows.”
Defi for the Masses
Although crypto users have flocked to defi en masse, a level of technical sophistication is required to interact with such protocols, with many industry newcomers left feeling alienated due to the steep learning curve.
Sky-high gas fees caused by network congestion have compounded difficulties, forcing many users to abandon Ethereum in favor of alternatives like Binance Smart Chain (BSC) and Polygon. However, the quality of defi protocols varies and the risk of impermanent loss threatens to wipe out profits.
If Formation Fi can enable users to bypass such sticking points while helping them configure profitable and sustainable yield farming portfolios, it might well be the next hot ticket in the rapidly evolving defi space.