Background
As DeFi continues to evolve, decentralised asset management protocols are emerging as a cornerstone piece, poised to command a significant market share. The world of crypto, and by extension DeFi, is teeming with ill-informed market participants—our industry is not short of ‘Crypto Coin-Flip Fortune Seekers’ searching for shortcuts.
While asset management isn’t foolproof (and let’s be clear, meme coin trading isn’t either), it does improve the odds by offering less-informed users the opportunity to delegate the heavy lifting to seasoned professionals and serves as an alternative investment strategy in the volatile crypto world.
Factor is one such innovative protocol building in this realm. Factor is a modular decentralised asset management protocol on Arbitrum that aims to democratise and decentralise asset management. If you want to dive deeper, we covered Factor previously in our complete protocol guide here.
In a nutshell, Factor is building a suite of products that will underpin the broader decentralised asset management sector within DeFi – supported by an all-in-one frontend connecting asset managers to potential investors (including individuals & DeFi native institutions/funds/treasuries) whilst also helping DeFi protocols with bootstrapping liquidity and increased trading activity. Incentives are well aligned between all key stakeholders. We explored Factor further in our follow-up article, touching on Factor’s DeFi middleware solution here – trust me, you’d wanna give this a read before proceeding ahead.
Now that the basics are out of the way (make sure you read our previous guides to get accustomed), let’s get to the meat and potatoes. Factor recently announced Factor v2. This is major news for the protocol and its future development, as such, in this article, I intend to explain what Factor v2 will entail, how the roadmap will play out, the v2 product suite, and much more! Strap in folks, this is gonna be a wild ride!
Factor v2
Factor v2 will be a revolutionary middleware infrastructure solution that promises to unlock the future of DeFi. Implementation of effortless cross-protocol compatibility, frictionless strategy creation without coding, and easy onboarding will enable Factor’s goal of increasing TVL and thereby revenue.
Essentially, Factor v2 will stand as a transformative middleware infrastructure, acting as a robust base layer that links various DeFi protocols. It’ll provide an all-encompassing approach to non-custodial asset and liquidity management, paving the way for a streamlined and effective user experience – which has been lacking thus far in DeFi.
The aim is to equip all key players—ranging from DeFi protocols, asset managers, and treasuries to individual users—with a suite of tools and a comprehensive framework designed to empower them to reach their goals, creating a positive feedback loop in the process!
Factor v2 will open up the possibility for anyone to forge and oversee intricate financial instruments. By offering the means to craft and manage a wide array of instruments such as vaults, yield pools, lending pools, liquidity pools, and tokenised baskets – or even a blend of these – Factor v2 will hand users the reins to invent unique structured products, operate on-chain funds, handle treasuries, or even set up fresh yield protocols. For those seeking to outpace the competition and mould the future of DeFi, Factor v2 is the ultimate resource. The opportunities are truly limitless.
All of this will be made possible by a suite of unique and novel v2 products and features. We will explore them later!
Interoperability & DeFi Front End
Factor v2’s no-code platform will facilitate automated strategy creation and management, promoting smooth operations across different protocols. It will provide an easy onboarding process for new DeFi users, granting one-click access to a variety of unique, risk-rated yield opportunities. As a powerful middleware, Factor accelerates DeFi’s growth and offers efficient, accessible opportunities.
Its role in expanding DeFi is significant, providing reliable, flexible solutions for users and the ecosystem, with advanced features like the creation of robust financial instruments and simplified strategy management. Factor v2 will aim to be central to the DeFi revolution going forward.
The modular architecture will ensure interoperability across multiple protocols and connect all the Lego blocks. Furthermore, v2 will also introduce an intuitive front-end to aid with user onboarding and simplify the UX. Historically, DeFi has struggled with clunky UX and outright abysmal UI (for the most part) – that’s finally gonna change!
Factor v2 Roadmap
Let’s explore the Factor v2 roadmap to visualise how the product is coming along and what to expect!
The Factor Vault v2 (more on it later) is currently under development. The progression of the development is planned to be segmented into distinct stages, each introducing its own exclusive array of enhancements and functionalities.
It will be divided into four phases:
- Phase 1: Preparation for v2 testnet deployment
- Phase 2: Launch and competition on v2 testnet
- Phase 3: Review and feedback from v2 testnet
- Phase 4: v2 launch on mainnet
You can learn more about each phase in greater detail here.
Factor v2 Product Suite
The entire v2 rollout will be spread across multiple months and will introduce novel structured products to the DeFi community. Builders be building, that’s what we love to see!
- Factor Vault V2
- Factor Vault types
- Factor Studio
- Factor Discover
- Factor SDK
Let’s explore these individually in greater depth.
Factor v2 Vault
Factor Vault v2, having been audited by Solidity Finance, brings significant improvements over its predecessor, Factor Vault v1, also known as Genesis Vault. While the v1 vault serves as an early model aiding in investment diversification, it had limitations that could hinder the effective implementation of various strategies.
Factor Vault v2 introduces a wealth of diverse strategies and advanced features, addressing the limitations of its previous version. V2 Vaults will come in several versions, each boasting unique capabilities and functionalities. Notable features of V2 vaults include the implementation of strategies within the vault, yield generation as assets are employed to facilitate strategies, and direct interaction with protocols without the need for aggregators or third parties.
In future discussions, each type of Factor Vault v2 will be explored in depth, focusing on how they cater to the complex and sophisticated strategies prevalent in the DeFi landscape.
Factor Vault Types
Factor v2 introduces a variety of new vault types, each tailored to manage specific assets and enable vault creators to effectively implement their strategies. The three main types of Factor v2 vaults are:
- Single-Asset Vault
- Multi-Asset Vault
- Pool/Batchable Vault
The Single-Asset Vault allows users to deposit a specific asset, which is then managed into a variety of non-leveraged strategies within the partner platform (such as LP provider, lending, and staking).
The Multi-Asset Vault can manage leveraged positions based on specific investment strategies. This vault is supported with bots, providing an additional layer of security against liquidation risks.
The Pool Vault is designed for batched transactions and provides profitability parameters to traders. It’s especially useful for trading perpetuals and options. This vault is actively managed by its creators, ensuring optimal performance and maximum profits.
Factor Studio
Factor Studio will be a revolutionary no-code platform designed to transform the DeFi ecosystem. As a middleware infrastructure, it will allow various stakeholders, including protocols, treasuries, individuals, and projects, to create and manage robust financial instruments. With a comprehensive framework for non-custodial asset and liquidity management, Factor Studio will promote innovation and collaboration within the DeFi landscape.
The platform will feature a range of tools, such as vault architecture for various strategies, automatic and manual swapping, flexible vault parameters with a layered permission system, and tokenised baskets for diversified portfolios. Users will be also able to optimise yield generation through customisable yield pools.
Factor Studio’s modular design will enable creators to develop custom DeFi primitives according to their needs, combining building blocks to design unique financial instruments. With available SDKs and API Integration, projects can launch and manage Factor-powered products on their UI and deploy custom strategies – pretty cool.
Factor Discover
Factor Discover will be a comprehensive platform designed to connect users with a vast array of DeFi products crafted using Factor Studio. Acting as a bridge between creators and users, it will display a variety of DeFi options including vaults, yield, lending and LP pools, tokenised baskets, and more.
The platform intends to simplify access to diverse DeFi products, boosting user engagement and promoting wider adoption. Users benefit from curated opportunities, easy navigation, detailed product information, while creators gain a potent distribution channel.
Discover showcases a broad selection of carefully vetted DeFi instruments approved by the FactorDAO, ensuring users access to reliable investment opportunities. Its intuitive interface and user-friendly design allow users to easily filter and sort opportunities based on various parameters, saving time and effort in identifying suitable products.
Each product listed on Discover comes with comprehensive information, fostering transparency and enabling users to make informed decisions. For creators, Discover amplifies product visibility, helping to tap into a wider audience and stimulate growth within the DeFi ecosystem.
Overall, Factor Discover simplifies the discovery process and nurtures a vibrant DeFi community, with a strong commitment to user experience and transparency, shaping the future of DeFi.
Factor Strategy SDK
Factor Strategy SDK is a versatile toolkit designed to simplify user interactions with the Factor platform, making it easier for users to create and deploy custom strategies. This comprehensive toolkit aids in developing, deploying, and managing custom trading strategies on Factor, with an intuitive interface and seamless integration that simplifies strategy creation.
The SDK integrates Strategy and Infrastructure with Factor’s Vault, supporting code-based strategy customization in various programming languages. It allows users to connect with a web3 wallet, interact with smart contracts to create and manage vaults, and retrieve vault settings.
The StrategyFactory within the SDK lets users deploy and interact with custom strategies. It includes algorithmic modules for customising rebalancing and execution algorithms in vaults, and simplifies depositing and withdrawing from other vaults. The SDK also offers an API for writing strategies in languages like Python, R, and Pinescript.
Designed for skilled traders, quantitative analysts, and software developers, the SDK integrates seamlessly with Factor’s vault framework. It’s an ideal tool for professionals seeking to maximise trading potential, harness the power of Factor’s vault architecture, and navigate complex and dynamic markets.
Factor Boost & Scale: Enabling Partner Protocols
Factor Boost and Factor Scale are innovative tools developed by Factor to amplify opportunities for Factor’s partner protocols. These tools unlock the potential to explore new use cases, tap into untapped markets, and widen the reach of their products to a larger user base. By leveraging these tools, partners can stay competitive with enhanced yields and establish their presence in the thriving Factor ecosystem. This not only fosters growth but also steers the course of their success by promising additional rewards to their vaults.
Crafting Bespoke Partner Vaults
Factor presents an exciting opportunity for partner protocols to create their exclusive vaults on the platform. Consider the convenience of having direct access to auto-compounding single or multi-asset yield vaults, or an index comprising their proprietary assets, which provides a one-click portal to diversified exposure across the entire product suite.
Factor’s streamlined vault infrastructure, once integrated, simplifies the process of creating vaults. Together, Factor designs the structure, and the partner protocol breathes life into the vault, and Factor ensures it shines in the vault marketplace. Then, Factor and the partner protocol embark on a joint marketing journey, generating shared fees and Total Value Locked (TVL). With over 40 partners already on the platform, Factor is poised to position the protocol as the premier marketplace for DeFi yield on Arbitrum.
Factor Boost: Incentivising Total Value Locked (TVL)
Factor Boost is a unique method designed to incentivise Total Value Locked (TVL) for Factor partner vaults. It offers an Annual Percentage Rate (APR) boost with $FCTR emissions matched against partners’ native tokens up to a certain amount per epoch (weekly). This scheme provides an additional APR boost on vaults, positioning them to offer some of the most compelling returns in the market versus comparable offerings. It is designed to bootstrap significant TVL for the mutual benefit of both Factor and their partners.
Factor Scale: Optimising Allocation of Rewards
Factor Scale is an innovative component of the Factor ecosystem, conceived to optimise the allocation of rewards and enhance the performance of Factor partner vaults. It takes into account several factors such as the TVL, performance factor (PF), and community governance to ensure a just and efficient distribution of rewards.
Factor Scale emissions are derived from the scale weight (SW), a calculated metric that considers the vault’s TVL, PF, and governance voting results. It is utilised to determine the reward boost allocation for each vault. By acquiring FCTR and locking it for veFCTR, partners can direct greater emissions to their vaults.
veFCTR Wars
Well, who doesn’t like some ve shenanigans, eh? I’m glad to report that the full potential of vote-escrowing and locking tokens and how it impacts various stakeholders will be explored by Factor – including “veFCTR wars”. This is all thanks to Factor Scale! You can learn more about it here.
Supplementary Graphics
Conclusion
In case you cannot tell, I am super hyped about these developments regarding Factor v2. I think the devs are fully focused on delivering a magnificent product and completely changing the on-chain asset management game.
In my opinion, ambitious projects like Factor, not only capture market share from a competitor but actually help in growing the overall market. Folks, the decentralised asset management sector is still in its infancy and then the overall DeFi market is also in its infancy when compared to TradFi. So I hope you can gauge the massive opportunity that could present itself. Again, don’t take it as financial advice – just my 2 cents on how I see things.
I’m particularly interested in how various DeFi protocols leverage Factor’s SDK and API integrations and deploy branded vaults and financial products. From a revenue generation pov, that could be a massive opportunity for Factor.
Well, that’ll do it for today, frens! I hope you enjoyed reading and learned something valuable. Until next time!
Resources
Website: https://factor.fi/
App: https://app.factor.fi/discover
Docs: https://docs.factor.fi/
Medium: https://medium.com/@FactorDAO
Public Notion: https://factorlaunch.notion.site/Factor-DAO-d1b4c1b95df4470f9f8b6c1b475a8c7c
