The objective of this note is to explain why I believe a decentralized approach to quantitative finance makes sense, and what advantages such an approach has relative to traditional ones.
ForceDAO, put simply, is a collective of strategists, developers, researchers and entrepreneurs working to identify and productize alpha in DeFi.
The Quantitative Thesis
We believe that quantitative techniques are tools. They are ways of applying traditional approaches to making investment decisions in a disciplined and systematic way. Thus our approach to investing is not at odds with a traditional one. We use the same tools many traders use, but attempt to apply them in a way that avoids emotion and slippages in implementation.
The State of Decentralized Finance
A number of prominent VCs from Marc Andreessen to Fred Wilson — use Carlota Perez’ canonical work on technological revolutions to describe the regular patterns of technology change and growth in the economy.
Crypto is a techno-economic revolution of social reach. And DeFi is effectively a sub-set of crypto.
According to Pérez, the diffusion of technological revolutions occurs within two periods. During the installation period, core industries and infrastructure are put in place, against the resistance of society and institutions still in the grip of the previous techno-economic paradigm. Only once this resistance has been overcome can the deployment period follow, during which the technological revolution spreads across the entire economy.
DeFi is in the “installation period”.
Structural Assets in TradFi and DeFi, a Comparison
Let’s examine DeFi’s parallels to the traditional monetary system.
The structural assets that comprise traditional finance are:
- Currency (eg. USD, YUAN, EURO)
- Commodities (eg. gold, oil, grains)
- Real Estate
In DeFi, their equivalents are:
- Cryptocurrencies (eg. ETH, BTC, DOT)
- Stablecoins (eg. DAI, USDC)
- AMM LPs (eg. SushiSwap, Thorchain)
- Interest-bearing Tokens (eg. cTokens, aTokens, yTokens)
The Road to Maturity
With these building blocks, DeFi is primed for the creation of an ecosystem that parallels the size and predominance of TradFi.
For DeFi to flourish and reach the maturity of Wall Street, a couple things need to happen:
- Development of market infrastructure that is capital efficient according to DeFi’s structural assets,
- Development of structured financial products that utilize such infrastructure.
Only then can alpha in DeFi be sustainable beyond the farming and dumping of governance tokens.
Yield Aggregators are Hedge Funds, but are they sustainable?
Yield aggregators, often viewed as saving accounts, pool funds to socialize gas fees and the costs of identifying/exploiting new farming opportunities.
This in many ways resembles traditional hedge funds, however, at their current stage, most yield aggregators rely solely on “automated farming” techniques. Governance tokens are limited in supply, and the game theory of new emissions are comparable to “musical chairs”, where actors who enter positions earlier in the game, perform better than actors who enter after.
Farming is profitable, but not sustainable.
ForceDAO’s Short-term Goals
Our team recognizes that capital efficient market infrastructure and structured finance will serve as the foundation for sustainable alpha and high-performing strategies in DeFi.
These more sophisticated instruments do not exist in DeFi, or exist with limitations.
This is why our roadmap will be initially focused on protocol-level infrastructure and “structured finance”.
We’re confident in our ability to deliver products in the index fund, fixed-income, stablecoin and derivatives space. But more on that in a bit.
An Open Hedge Fund
Force is community-driven, not because we’re good samaritans but because we understand the invisible hand and embrace the forces that drive the free market economy.
In the words of Adam Smith:
Through individual self-interest and freedom of production as well as consumption, the best interest of society, as a whole, are fulfilled.
The best of it all, we’ve designed our DAO to align the incentives of those who want to identify alpha and productize it. Here’s some perks for our strategists:
- $10K — $50K reward for building a strategy.
- 10% of all profits go back to the strategist(s).
Our DAO is an alpha aggregator, we’re a playground for quants, developers, researchers and entrepreneurs who seek to build strategies, and get paid like no where else for them.
Below I share ForceDAO’s public roadmap for 2021. The future of DeFi is both chain and scalability layer agnostic. We’re building products that are interchain compatible first. Similar to when web app development shifted from desktop to mobile first.
Over the coming weeks, our team will share a public, real-time roadmap on notion with the status of each product.
*Note: The names of these internal products may change prior to their release.
If you’ve gotten this far into the article, you understand there is a serious operation behind ForceDAO. This project is not a hobby or DeFi experiment, we’ve set ourselves to build the world’s first open hedge fund.
A one-stop-shop for your investment needs.
The roadmap is ambitious, but I’m happy to tell you we’re halfway there. Most of the products mentioned above have been built and are under security review. We will roll them out once our team feels comfortable with their level of security.
I’m writing this post prior to our Force V2 launch. In the aftermath of the recent exploit, we’ve restructured our organization to reflect our commitment to security. No product will be deployed without rigorous internal testing and a formal security review.
Even then, our products will continue to be tested on testnets and public beta mainnets, where bug bounties will be rewarded to those who identify critical bugs, if any.
Now, it’s time to introduce our core team. Our full team is comprised of over 20 people, you can find them in our upcoming landing page soon. To preserve the privacy of some of our members, they will be introduced through their pseudos.
- Role: Technology / Strategy
- Bio: Alberto is full-time DeFi, building and contributing to different projects including Travala, Badger and now, Force. Previously, he was co-founder and CTO at a Canadian neobank. Alberto has a background in math and economics.
- Role: Operations
- Bio: Anna brings corporate structure, and operational excellence from her experience working with 30+ Fortune 100 companies. Previously, VP at AIG, MD at Accenture and Director at McKinsey. Life Long Learner.
- Role: Technology
- Bio: Noah brings 13+ years research and development experience to ForceDAO. He previously lead several blockchain technology teams at companies such as Tag Innovation and Blockable, managing mainnet deployments in the distributed storage, node infrastructure and identity space.
- Role: R&D
- Bio: MercenaryApe is an entrepreneur with a decade of experience in designing and building distributed systems. He’s built numerous decentralized networks since 2013, from idea to launch and scale. As a data scientist by training, his passion lies in building data informed yield mechanisms as well as novel governance models.
- Role: Product
- Bio: Brain Jar brings his previous experience managing the lifecycle of different financial products at a traditional hedge fund. Prior to joining our team, he was responsible for operating a large-scale FinTech accelerator, as Head of Product. At ForceDAO, he is the primary driver of product support serving as a liaison between technology, security and project mgmt.
- Role: Community
- Bio: DeFi Dan has 16 years of experience in retail customer service and sales. After being introduced to Bitcoin 3 years ago and going down the rabbit hole, he has been actively involved in crypto communities learning and networking. As Community Lead for Force DAO, he has a passion to see the team and community working together to see new investment strategies brought to DeFi.