Falcon Finance uses advanced automated trading methods that focus on two main ideas. The first idea is funding rate arbitrage and the second idea is cross exchange arbitrage. These methods help the system create steady profits for users. The trading methods work in a market neutral way which means the system avoids taking big price risks. All of these methods are built into the smart contracts of the protocol. They help control collateral and keep the synthetic assets stable. #falconfinance
How the system creates yield
Funding Rate Arbitrage: The system looks for differences in the funding payments between the spot market and the futures market. It opens both a spot position and a futures position at the same time. This allows the system to collect the funding payments while keeping the price risk low. The goal is to earn the funding fee while staying protected from big market swings.
Cross Exchange Arbitrage: Falcon Finance uses high level professional trading programs to find small and brief price differences for the same asset on different exchanges. These exchanges include both centralized exchanges and decentralized exchanges. When the system finds a price difference it buys the asset where it is cheaper and sells it where it is more expensive. The profit made from this difference becomes yield for users.
How the system manages collateral and risk
Universal Collateral Engine: The protocol allows many types of assets to be used as collateral. These include stablecoins and Bitcoin and Ethereum and tokenized real world assets. The system calculates how much extra collateral is needed for assets that can change in price. This helps keep the entire system safe and stable.
Automated Monitoring and Risk Management: Falcon Finance watches market conditions at all times with automated tools and with on chain data feeds. If the price of an asset changes too much or if a stablecoin starts losing its value peg the system can quickly close or hedge positions. This reduces the chance of large losses.
Yield Distribution System: The protocol uses the ERC 4626 vault standard to measure and distribute yield in a clear and open way. Users hold a token called sUSDf. This token grows in value over time when the system produces and compounds yield. Its value becomes higher than the value of the basic USDf token as the system earns profits.
Dynamic Collateral Adjustments: The protocol also plans for a flexible risk engine that can change collateral needs based on real time market conditions. It can react to things such as sudden price swings or low market liquidity or high correlation between assets. This helps protect the system during stressful market events. #BinanceSquareFamily
All of these methods allow Falcon Finance to create real returns from actual trading activity. It does not depend on printing new tokens for rewards. This supports a more stable and long lasting DeFi system.
