Volt Protocol will seek to support the full diversity of possible asset types and yield strategies within market governance, but must prioritize based on risk and reward. This document will explore our current plans and rough timelines, of which the relative order is far more accurate than the time guesses.
The lowest risk category of PCV assets and yield strategies. Frictionless means no fee or slippage to enter or exit on demand. Lossless means single denomination and no downward volatility in value under the normal course of function. These are the focus for the current early stage of VOLT.
Examples of this category include lending pools like Compound and Aave, single staking like the DAI Savings Rate, and newer protocols like Morpho. So long as VOLT holds any of the stablecoins accepted in these venues, it can rebalance between them freely in pursuit of optimized yield.
Currently Volt Protocol PCV is deployed in Compound v2. We expect to add 2-4 more venues in this category prior to market governance launch (over the next two months). The most likely candidates for next venue onboarding are Morpho-Compoundv2, Compound v3, and Euler. While Aave v3 is also of interest, the cross chain functionality will make proper security scrutiny more challenging.
One of our main subsets of market governance that we’re working on is the Swaps Module that will allow VCON holders to reallocate between not just DAI and USDC (which is easy and free thanks to the MakerDAO PSM), but any stablecoins approved by governance. Likely candidates would include New York regulated stablecoins like BUSD or a large market cap decentralized stablecoin like LUSD. The market module and one or more new PCV stablecoins will be included in the market governance MVP launch, expected to occur in 2-3 months from now.
Fixed yield assets on Notional and Sense as well as any real world asset loan cannot be immediately liquidated for their maturity value. Any strategy that is not fully liquid may cause a maturity mismatch when VOLT holders wish to redeem.
From a technical perspective, the swaps module will also allow market governance to allocate in fixed yield strategies, but there will need to be safeguards put in place. To maintain liquidity, the surplus buffer should be large enough to pay elevated yields on the circulating supply (and attract new VOLT holders to replace those who wish to leave) until the backing matures.
Robust modeling will be needed to determine efficient parameters, but a starting heuristic is that total PCV allocated to fixed yield or otherwise illiquid venues should not exceed twice the size of the surplus buffer. Fixed yield asset onboarding will occur after the MVP market governance launch, with security diligence starting in about 2 months.
So far all of the venues and strategies we’ve discussed involve acquiring a yield bearing asset or depositing PCV into an existing venue.
Once market governance is complete, we can also bootstrap our own yield venues. The Swaps Module can be thought of as falling in this category, since it will allow VCON holders to market make instead of being takers on a DEX.
Internal yield products might include offering CDP or lending pool style leverage against assets that are approved in the VOLT PCV. I’m particularly excited about the idea of VOLTETH, or VETH, which would be an ETH-denominated deposit earning market governance yield just like VOLT does. VETH holders could borrow at whichever is lower of the VOLT rate or the rate to borrow stablecoins in integrated venues.
It’s hard to give firm timelines at this point, but once the entire market governance system is live, it will not be very hard to launch VETH. Within two months of market governance launch, so four to six months from now seems realistic. The initial version would likely just be the yield bearing token, with the internal lending market coming later.
Anything that may require liquidation of VCON holder positions falls into this category, which includes fixed yield assets with very long maturities and risk of large price swings when the interest rates change, as well as strategies with basis risk such as holding non-USD stablecoins. The liquidation system is planned as part of market governance v2, and will be released in 3-6 months following the MVP launch.
By the time market governance is in full function and the VOLT system is well on its way to robust decentralization, it will be time to focus on integrating VOLT in the real world. We don’t believe in ceding the ground of real world asset custody to centralized issuers like Circle. Instead, focused foundations and trusts in the right jurisdictions should be used to close the gap between smart contracts and dumb contracts to the greatest extent possible.
MakerDAO are the pioneers of this, for example the recent Huntington Valley Bank deal. This remains an important area of research and investigation for us and cannot be rushed. We will hope to have an MVP for direct VOLT real world assets in the year after market governance launch.