As reflected in the recent US launch of the new Bitcoin Futures ETF, a number of products are about to be launched to meet the ever-increasing user demand for futures and leverage-oriented products.
Follo is the first of its kind: a structured fund protocol that aims to create a robust USD-denominated bond and leveraged token based on the token’s spot price.
Although this model is somewhat technical, similar to Follo’s protocol, the underlying ideas are easy to understand.
The core of Follo is the implementation of two different tranches for their users.
- Senior tranche: a USD denominated bond that guarantees the user principal and interest.
- Subordinated tranche: a leveraged token that can be traded anytime, anywhere with variable leverage.
The underlying assets [Senior tranche] are used throughout the protocol and in combination with Automated Market Makers (AMMs) to provide the participants in the subordinated tranche with the necessary leverage.
By automating this process through Follo P rotocol, users can be sure that their funds and leveraged trades are secured regardless of the tranche in the chain.
In order for this to work, the protocol locks the underlying asset at a multiple of the market value of the leveraged token. This ensures that the protocol is robust and ensures user security while at the same time creating a cryptographically secure float over the Follo network.
The crypto market can be very volatile, so Follo has countered this volatility with an automatic rebalancing mechanism. Follo’s unique rebalancing mechanism is often performed to maintain a fixed leverage ratio for our users.
With leveraged tokens, the rebalancing takes place with a fixed ratio if the leveraged ratio begins to deviate from the target quota. The rebalancing is an important mechanism as it reduces the leverage multiple and adjusts the unsold shares of senior and subordinated funds. Conversely, this mechanism increases leverage when the price of a token increases.
The rebalancing of Follo does all of this while ensuring that the value of the funds our users hold in senior and subordinated funds remains unchanged. The purpose of rebalancing is twofold:
[1.] To avoid liquidation
[2.] To make sure the leverage is stable
FOLLO-Token is a utility token of the Follo protocol. With the token, users can pay fees, receive dividends from the platform network, vote on protocol decisions (similar to a DAO) and much more.
Follo Protocol recently opened its second round of product development and global marketing funding. Follo v1 is currently available in the KOVAN Testnet under app.follo.one.
Further information can be found in the Follo Protocol Community: