Volt Protocol vs VOLT
Volt Protocol is a decentralized savings and credit system with multiple types of users and stakeholders. VOLT is the system's USD-denominated native stablecoin and unit of account. VCON (not yet released) is the system's surplus buffer share, which could be described as a governance token or insurance token. There may also be other system components in the future, like a native lending market or alternative derivatives like VETH.
What is VOLT?
Wikipedia, the closest we have to a common frame of reference today, defines stablecoins as "cryptocurrencies where the price is designed to be pegged to a reference asset". Since VOLT always has a defined price in USD terms, it can be called a stablecoin. Since this price increases at the VOLT rate, it can also be considered a tokenized yield bearing vault.
Unlike something like a Yearn DAI Vault (with associated deposit token yvDAI), VOLT is not associated with one specific stablecoin, and instead maintains redeemability in one of several approved stablecoins (currently DAI and USDC). Also unlike a normal yield vault, VOLT has a substantial surplus buffer (overcollateralization).
As a result, VOLT is somewhere in between a normal stablecoin and a yield vault. One way to describe it is as a "savings stablecoin" or "yield-bearing stablecoin" as opposed to a "payment stablecoin" which offers no yield.
What is the VOLT rate?
The VOLT rate is the yield earned by VOLT holders, and correspondingly the cost VCON holders must pay to allocate system capital in market governance.
Currently, the VOLT rate uses a placeholder oracle and is adjusted 'manually' by governance. The current VOLT rate is 1.44%. Under market governance, the rate will adjust algorithmically based on the following factors:
- surplus buffer ratio: if the system surplis is too small, more yield will be kept for the surplus, and vice versa.
- liquidity profile: if the protocol's liquid reserves are too small, more yield will be offered to the VOLT holders to attract and retain deposits, and vice versa. This is similar to the interest rate models on Compound or Aave. The rate may be very high for a short period in a liquidity crunch to ensure peg stability.
- actual venue yields: the VOLT rate will never exceed the yield actually obtainable in the venues except to mitigate liquidity crises as described above.
Where does the yield on VOLT come from?
VOLT deploys yield into whitelisted venues to earn yield. Currently, this is limited to Compound v2. The core contributor team is working on the security diligence needed to onboard additional venues like Morpho or Maple Finance.
What is the surplus buffer?
The surplus buffer is capital owned by the protocol itself, as opposed to capital that may be redeemed by VOLT holders on demand, and its primary purpose is to secure the system against risk. The surplus buffer may be used to directly absorb a loss in a lending venue, or to pay out a higher VOLT rate to finance illiquid instruments, as described in the VOLT rate section above.
When the surplus buffer is too far below target, VCON auctions may be used to recapitalize the system. Likewise, when the surplus buffer is very high (>20% of the system funds), VCON will be redeemable for a pro rata surplus buffer share.
Where does the PCV go?
Volt Protocol PCV will be directed into various yield venues, currently only Compound v2. VOLT will never be backed by non-USD denominations like ETH or governance tokens of any other project. Read more about PCV usage restrictions here.