We are shifting Exponent to become the go-to Capital-Management-as-a-Service (CaaS) protocol. The protocol equips decentralized application (dApp) developers with the tools and services to offload and streamline capital management through smart contracts. By offloading capital management requirements to a specialized service provider, developers can now focus on what they do best: shipping awesome products.
Before we elaborate further on Exponent’s CaaS platform, we must first recap what we learned from pursuing quant asset management.
Why Quant Strategies Don’t Work (Yet)
We started Exponent with the aim of building a DeFi native service that empowers people and projects to consistently invest well across market cycles. Our first approach was to create a quant-focused alpha product. What we uncovered, however, were inherent blockers that exist across all blockchains including L1 Ethereum, L2s, and other high throughput blockchains that make quant trading infeasible. These blockers include:
- Liquidity fragmentation across DEXs and networks
- Expensive gas costs, particularly on L1 Ethereum
- Nontrivial slippage and price impact across venues that makes large fund sizes impractical
Although quantitative strategies have played a key role in traditional equity markets, it is currently not feasible for DeFi and requires new primitives and market structures.
However, throughout the process, we uncovered a much larger opportunity in providing Capital-Management-as-a-Service.
Optimal Capital Management
As decentralized applications grow in adoption, capital management for long-term operations and growth becomes increasingly important. Yet, the fact remains: it is difficult for small teams to manage capital in-house while also building their product(s).
In our view, optimal capital management:
- Offers solutions for capital efficiency
- Exhibits comprehensive risk management
- Brings flexibility and connectivity to achieve specific objectives
- Performs reliably across different market conditions
Over the next few years, billions of dollars in project liquid capital will require bespoke capital management, which will be delivered via external, DAO-operated services.
A Case for Capital-Management-as-a-Service (CaaS)
The emergence of “as-a-service” solutions like Oracles, Identity, and Storage protocols have opened the floodgates for developers to conduct rapid experiments and bring innovative dApps to market faster, cheaper, and more securely. However, a key missing piece in the dApp toolkit remains: a dedicated capital management service. This is arguably one of the most critical and underserved services for developers as most are not native financial managers.
In our opinion, CaaS would bring many benefits to developers including:
- Allowing them to stay focused on their core product, rather than spending time, resources, and attention on capital management.
- Providing them with access to specialized trading and risk management skill sets to comprehensively manage capital towards their objectives.
- Reducing their engineering and operational risks with the use of a purposefully built and audited infrastructure.
Introducing Exponent, The CaaS Protocol
Exponent is an open-source protocol that enables dApp developers to offload capital management requirements to a specialized service provider via smart contracts. The protocol is owned and operated by the Exponent DAO. We believe that in order to onboard the next million users into the decentralized world, developers need the best capital management service so they can focus on building awesome products and attract a large cohort of new users.
The Exponent CaaS first focuses on solutions to improve efficiency and sustainability of working capital, with the plan to expand offerings to other types of treasury assets.
At a high level, the Exponent CaaS has three major components including:
- Vault — a one-stop capital management infrastructure that enables non-custodial creation of tokenized pooled asset portfolios. The Vault smart contracts operate to track user deposits, withdrawals, asset allocation, and rebalances.
- Middleware — application-specific logic and strategies which provide capabilities to the application layer including data management, smart contract deployment, execution, and API management.
- Strategy generation — best-in-class return generation and volatility-managed DeFi products. Initial strategies will be generated and tested by the Exponent DAO.
The detailed design will be available shortly through the updated Litepaper. Stay tuned!
In October we successfully carried out our Alpha Release to obtain user feedback on the Exponent Vault, as well as completed the smart contract audit with Quantstamp. Reference to the Alpha Release is available here.
Looking ahead towards the end of the year and early 2022, we are diligently preparing for the mainnet Beta release of the Exponent Vault, which will help us test our infrastructure. This will be followed shortly by the release of the first end-to-end CaaS product.
Want to learn more about how you can contribute to strategy creation or put your idle capital to good use?
Visit our Website: https://www.exponent.cx/
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