The transformation of Falcon Finance to become a neutral with risk-managed yield chasing represents a wider DeFi maturity. It was not theorized, nor was it based on some idealized model, but rather the experience of life, that cycles of volatility would reveal the inability of strategies that have worked in one regime to successfully work in another. It was no longer about adrenaline it was about survival. During the early onset, Falcon tilted towards what the market favored. Spot-long and futures-short strategies were very effective with positive rates of funding on crypto perpetuals. Cross exchange arbitrage would extract the inefficiencies between exchanges, and the staking and liquidity on centralized DEXs would lead to higher returns in times of high volume. Options strategies were also at the forefront and they were able to capture a high volatility premium, in organized, mostly delta-neutral schemes. These strategies were not carefree, but rather were streamlined to work in a market environment that could not sustain itself indefinitely.
When the conditions changed, there appeared cracks. Rates of funds became negative more frequently and lasted longer. Alternatives altcoin trading started to prevail and trades that relied on the continued optimistic mood were no longer reliable. Falcon did not choose to go on the offensive, but rather to resign the issue. Negative funding was no longer a challenge, it was another yield. The controlling philosophy became the risk-controlled neutrality. Falcon took a pure take on delta neutrality, tapping both sides of the funding market. Concentration risk was mitigated by exposure caps, more stringent open interest requirements and more conservative collateralization requirements. Collateral itself developed into a dynamic risk buffer and is now encompassing altcoins, tokenized gold and equity-linked instruments in addition to BTC and ETH. It was not a quest to develop new things; rather, it was the resilience.
The increased risk plans did not evaporate, but were limited. Volatility positions and opportunistic positions were still being traded with parameters that were more tighter and risk is distinctly differentiated between the baseline yield generation and the risk. Intermediate returns are directly added to the value of sUSDf, and this removes shocks and smooths returns to users. Finally, Falcon ceased to attempt to outperform the market and created itself to coexist in it. This is an extension of a broader DeFi discovery: sustainability is important than screenshot APYs. Through equilibrium between focusing on engineered neutrality versus directional bets, Falcon makes synthetic dollars such as USDf long-lasting infrastructure. The silent power of neutrality with risks being controlled can be the most useful tool of all in a market whose deform is one of perpetual motion.
#FalconFinance @Falcon Finance $FF
