Volt#05: Capital Protection

Outperform in volatile markets with principal protection
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Volt #05 generates outsized returns in volatile markets with rising interest rates, while offering 100% principal protection. It uses interest yields from optimized lending to purchase downside protection from volatility products (options) into a single, powerful DeFi product.

How does it work?

  1. 1.
    Deposits are lent out on Tulip to earn interest yield (optimizes and rebalances among overcollateralized lending platforms). Principal (USDC deposited) does not have any price exposure!
  2. 2.
    Volatility protection: A portion of the lending interest earned is used to purchase SOL put options which hedges against downside volatility (when SOL price falls drastically). Note: Principal is not used to buy put options — only interest accrued.
  • In events where SOL price falls more than the price hedge % (eg 25%), depositors earn outsized returns from the volatility protection payoff (put option).
  • In events where SOL price falls less than the price hedge % or rises, depositors earn returns linearly (from lending interest).

What does price hedge % mean?

Price hedge % is the percentage an asset (SOL) has to move for the hedge to payout! Measured by the difference between current spot price and the strike price of the put option being purchased by the Volt.
In the case of a 25% price hedge — this means that SOL put options are bought with a strike price that is 25% lower than the current spot price of SOL (for example: if spot price: $40 then strike price: $30)
When the price of SOL falls below the strike price, the put option is in-the-money and the option buyer (a Volt#05 depositor in this strategy) has the right to sell SOL at the strike price (which is higher than spot price), locking in gains from the difference!