What is Friktion?

Friktion introduces an Automated Portfolio Manager (APM) into the DeFi ecosystem, offering both active and passive strategies, known as Volts. The APM provides a set of profit opportunities for Users, finding ways to maximize returns while capturing volatility yield in various market environments.

How do covered calls work?

Before getting to DeFi, let's understand how covered call options work in TradFi. By selling a call option on a stock, you are essentially selling someone the right to buy 100 shares of a company from you at an agreed upon price (strike price) before a specific date (call expiration date). The person buying this call pays a premium for this option because they are bullish on the stock going past the "strike price" and they want to buy the stock cheaper than the new higher price.

Now back to Friktion's volt.

This volt is selling call options on BTC with strike prices that respond to the BTC price at the start of the epoch. The historical BTC price and strike prices per epoch can be seen in the chart above. At the point of this writing, this volt is generating a pretty good return of 18.3% APY.