i bought a bag of Flare ($FLR)

In partnership with

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Two weeks ago I reset the Positive Skew portfolio.

I analyzed which tokens performed the best during the Yen Carry trade debacle, identified those that fell the least and rebounded the strongest, and then I reallocated the portfolio to align with the post-crash market conditions.

Coming out of that exercise, Flare Network ($FLR) stood out.

It dumped just like everything else, but not that bad. Then it rebounded, better than most.

Across all the metrics I tested, FLR was consistently among the better performers.

I did some digging and decided to buy a bag. Here’s what I learned.

But first, I’m crazy excited to have Mood as Positive Skew’s first sponsor. 👇️ 

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Good Reads

Investing Book: Advanced Portfolio Management: A Quants Guide for Fundamental Investors. This involves math, but its the best book out for what we do. I keep my copy on my desk.

Vitalik: Ethereum creator Vitalik Buterin wrote a blog post about “Plurality” and how this philosophy could influence governance structures in the digital age (governance remains a big, unsolved problem in decentralized tech)

Podcast: Kris from moontower.ai on the “Flirting with Models” podcast. So good.

Random: FarmBot, the robot gardner. Want. If anyone buys this, please tell me. I have so many questions. https://farm.bot/

My Flare Bags

Flare isn’t one of those tokens where I want to scream about it from the rooftops. I like the investment, but it’s got some hair on it.

As such, I didn’t exactly back the truck up.

FLR is currently the 5th largest holding in the Positive Skew portfolio (6th if you count cash), behind Solana, WIF, Ether, and Stacks.

I like FLR because of its performance over the past month relative to the rest of the market. It help up particularly well over the crash weekend back around August 5th. I think that price action matters.

I also like Flare’s core raison d’etre - the core problem Flare is seeking to solve is real and valuable. The team has a close partnership with XRP (all XRP holders were eligible for the FLR airdrop last year), giving it a mature and solid ecosystem to serve, not to mention additional integrations and partnerships across the rest of DeFi.

The price action is showing a bit of negative momentum at the moment (my systematic system has it rated as an average “Sell” as I type this — but everything is struggling right now) and there isn’t much of a narrative for FLR on crypto twitter (outside of the XRP community anyway).

The momentum has improved quite a bit over the past month though, so the trend could be turning.

I’m long, but proceeding with caution.

What problem does Flare solve?

Flare aims to be the “blockchain for data,” enabling decentralized access to high-integrity data from multiple sources, including other blockchains and the internet.

Let’s say you’re a quantitative trader at a hedge fund.

Or maybe you’re doing degen shit on DeFi and want to use leverage to max out your yield farming gains.

Or maybe you’re into prediction markets like Polymarket, using crypto to gauge the probability of some off-chain event (like an election, or anything else).

More generally, decentralized systems all need protocols with:

• Data accuracy and integrity to provide reliable, tamper-free data for smart contracts and dApps, critical for DeFi applications.

• Data interoperability to enable seamless data sharing across different blockchain ecosystems, supporting cross-chain applications.

• Real-time data processing to deliver instantaneous updates for financial trading and IoT devices.

For all of these scenarios, and many more when you think about it, the need for accurate, reliable, and quickly updated (low-latency) data is non-negotiable. If you can’t trust the data, then the whole operation falls apart.

In crypto, data comes from services called oracles. These oracles capture data from all over the place — exchanges, DeFi, off-chain sources — and then distribute that data through smart contracts/APIs.

But there are challenges still:

Decentralized Data Access: Traditional blockchains struggle to access reliable, real-time data from multiple sources, limiting the scope and functionality of dApps. Off-chain data is a challenge, but so is accessing data across chains and ecosystems.

Dependency on Third-Party Oracles: Most blockchains rely on centralized oracles, which can be a single point of failure and are less secure.

For example, take Chainlink ($LINK), the leader in the oracle market today.

Chainlink is a “decentralized” app, however it’s centralized team selects which data sources are included in their offering. It’s built first on top of the Ethereum network, almost like a layer 2. It’s expensive to stand up and run a Chainlink node, disincentivizing decentralization even further. Chainlink is also a slower solution than other, more modern oracle designs — there’s an inherent latency between the data source and the execution of any transaction.

In other words, it’s imperfectly reliable, not really decentralized, and will always have some latency.

Flare’s answer is a Layer 1 built for data

Flare takes a different approach, integrating the data oracle functionality natively into the Layer 1. The oracle exists in the same place as the execution.

To do this, the Flare team built two key features that really define Flare as a data native protocol — the Flare Time Series Oracle (FTSO) and Data Connector.

Flare Time Series Oracle (FTSO): Provides decentralized, accurate, and up-to-date price and data feeds by aggregating information from multiple independent data providers.

Data Connector: Allows dApps to securely access and utilize data from various blockchains and the internet without relying on centralized entities.

Together, these two features bring reliable data to the network, serve it with the minimum latency possible, and ensure that the data is interoperable across all of Flare’s partner ecosystems. The data is delivered on a secure and decentralized layer 1 architecture.

Competition

Flare has a number of competitors, including the aforementioned market leader, Chainlink. There are a number of others out there, but in my view only Pyth is worth calling out individually alongside Chainlink.

Pyth Network ($PYTH) specializes in real-time data processing and data accuracy for finance, offering high-frequency, low-latency financial data for DeFi applications.

Pyth is part of the Solana ecosystem (watch out for the token unlocks on this one — I really like Pyth as a product, but their token is facing so much headwind on unlocks).

Pyth’s competitive differentiation is low-latency financial data. They’re going after the market for traders and high finance. Speaking of high, you should click that Mood offer above and try their gummies. It’s federally legal!

One key distinction that’s worth calling out — there are all sorts of data use cases in blockchain infra today, oracles being just one.

For example, I wouldn’t put Flare in the same category as a protocol like Celestia. Celestia et al are much more about data availability to help rollups and Layer 2s scale. Data availability projects are about data that keeps the lights on — Oracles are about feeding data from external sources to solve an application problem.

It can get confusing at first because everything is data this or data that. Just remember that Flare is not really a competitor to the data availability players emerging in the modular blockchain space.

Tokenomics

The FLR token is the utility token for the network and can be used for delegation to data providers, staking, and governance. Wrapped FLR (WFLR) offers additional functionality throughout DeFi.

15% of supply airdropped in January 2023. Multiyear vesting schedule follows — as of today we are not quite half way through the token unlocks. So that’s a tough headwind.

Is FLR a buy?

I bought Flare, so to me, yes. This was a discretionary bet - the performance over the last month weighs heavily in my judgement. While everything was dumping in August malaise, FLR was pretty stable. Like the rest of the market, its been through a steady decline since the spring. The trend will eventually bend at the end, right? …right!?? 😅 

Of the oracle products on the market, I like Pyth the most. However, the token unlock schedule is brutal, and it’s just not clear how much extra alpha Pyth would generate on top of my big Solana and WIF position. I’m highly concentrated in the Solana ecosystem as it is, and that concentration is implicitly leveraged given the high vol, high beta of WIF.

FLR on the other hand has only correlated with SOL and WIF about 50% — I love this as diversification opportunity.

All things considered I assigned a forecast of 5 to FLR in my portfolio allocation model. That’s a weak buy. I’ll continue to hold for at least a few weeks as we observe more price action.

Portfolio Update

No trades this week. I did spend some time updating my systematic system from Excel to Python, including a major overhaul to my forecast model. I’m excited to share this with you in the coming weeks.

Market Vibes