Bitcoin is high-performing, sovereign-independent, and inflation-resistant. Still, significantly greater utility can be unlocked by reorganizing the volatility of bitcoin into senior and junior derivative assets. This expands the market by allowing investors to access a full spectrum of risk-reward profiles.
The First Leg: A Lower Volatility Bitcoin
On negative-return years, bitcoin's historical average is a striking -55.94%. That is to say, if you unexpectedly needed to withdraw from value held in bitcoin, you might be prohibitively down. At (1/5th) volatility, however, bitcoin is extremely usable as a near and medium term store of value.
Backtesting 1/5th volatility bitcoin (rebalanced annually) shows an average downside return of -11.73% compared with bitcoin's -55.94%; and an ARR of 34.48%. Meaning as a holder of this asset, you would be generating a 34.48% return annually; and if you unexpectedly needed to withdraw on a bad year, you would have only been down -11.73%.
Avg Return | Avg Up Year | Avg Down Year | Worst Year | Up years | Down years | |
---|---|---|---|---|---|---|
BTC | 175.68% | 252.88% | -55.94% | -73.56% | 9.0 | 3.0 |
SrBTC (20%) | 34.48% | 49.89% | -11.73% | -16.87% | 9.0 | 3.0 |
Putting this into perspective, a risk-adjusted 34.48% ARR outperforms the average global hedge fund, money market fund, and private equity fund.
Asset Class | Avg Return | Estimated AUM |
---|---|---|
Global Private Equity | 10.5% | $13.1T |
Global Hedge Funds | 6-8% | $3.5T |
Global Money Markets | 2.91% | $9.9T |
Combined, we estimate low volatility assets (LVA’s) to be a $26.5T market opportunity. SrBTC is a weath accumulator's asset and a significant bull case for BTC.
The Second Leg: A Higher Volatility Bitcoin
In creating low volatiliy bitcoin, we produce a corresponding high volatilty bitcoin, further expanding utility. Read about the motivation for higher volatility bitcoin.
The Fragments protocol works by reorganizing the volatility of an input asset (cbBTC) into senior and junior perpetual tranches. Sr tranches are lower in volatility than their underlying asset; and Jr tranches are higher in volatility than their underlying asset.
Holding both Sr and Jr perpetuals in the right ratio is equivalent to holding the underlying asset because net volatility is conserved.
The system has configurable hyper-parameters (including fee rates). These parameters and any balance of assets accrued by protocol fees; are governed by the FORTH
token. For more details see the documentation.
Follow the release schedule of SrBTC
and JrBTC
on Twitter (X) and learn the mechanics by reading the docs. Contact us below if you're interested in becoming a TVL or distribution launch partner.