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FOLLO – The First Structured Fund Protocol Open for Any Token

Place/Date: - November 10th, 2021 at 6:00 pm UTC · 3 min read
Source: Follo Protocol

FOLLO – The First Structured Fund Protocol Open for Any Token

As reflected in the recent launch of the new Bitcoin Futures ETF in the US, a number of products are about to be introduced to meet the ever increasing user demand for futures products and products designed around leverage.

Follo is the first of its kind: a structured fund protocol that aims to create a robust USD-denominated bond and a leveraged token based on the spot price of the token.

While this model is somewhat technical, much like Follo’s protocol, the underlying ideas are easy to understand.

Tranches

At Follo’s core comes the implementation of two different tranches for their users:

  1. Senior tranche: a  USD-denominated bond which guarantees principal and interest to the user.
  2. Subordinate tranche: a leveraged token which can be traded anywhere with variable leverage at any time.

The underlying assets [Senior tranche] are used across the protocol and in combination with Automated Market Makers (AMMs) to provide the necessary leverage available to those participating in the subordinated tranche.

By automating this process through the Follo ​P​rotocol, users will rest assured that their funds and leveraged trades are secured on-chain regardless of tranche.

To make this work, the protocol locks the underlying asset at several times the market value of the leveraged tokens. This ensures that the protocol is robust and ensures user security while creating a cryptographically secure float across the  Follo network.

Rebalance Mechanism

The crypto market can be highly volatile, so Follo addressed this volatility with an automatic rebalancing mechanism. Follo’s first-of-a-kind rebalancing mechanism frequently runs in order to maintain a fixed leverage ratio for our users.

The rebalance occurs for leveraged tokens with a fixed ratio when the leveraged ratio begins to deviate from the target ratio. Rebalancing is an important mechanism because it reduces the leverage multiple and adjusts the unsold shares of Senior and Subordinated funds. Conversely, this mechanism will increase leverage if the price of a token goes up.

Follo’s rebalancing does all of this while ensuring that the value of funds that our users hold in Senior and Subordinated Funds remain unchanged. The purpose of the rebalance, there is twofold:

  • To avoid liquidation
  • To ensure that leverage is stable

Token

FOLLO token is utility token of Follo Protocol. The token allows users to pay for fees, receive platform network dividends, vote on protocol decisions (similarly to a DAO), and much more.

Recently, Follo Protocol has opened its second round fundraising for product development and global marketing. Follo v1 is currently available on KOVAN testnet here.

​For more information, please visit Follo Protocol Community: Telegram, Twitter.

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