- Volt uses Fuse, an Ethereum-based, open-interest protocol that supports isolated interest rate markets.
- Each month, the target price of Volt updates according to changes in the inflation rate.
2022 has seen a wave of venture capital money pouring into the blockchain industry. Last week, NEAR Protocol announced it had raised $350 million in new funding, and last month, Nova Labs raised $200 million.
Smaller raises may be less eye-catching but equally important. A new project, Volt Protocol, is looking to create a spark within the stablecoin industry with a $2 million seed round co-led by venture capital firm Framework Ventures and Nascent, a team of DeFi builders and investors.
Founded last April, Volt Protocol calls itself “a decentralized, inflation-resistant stablecoin.” Its protocol tracks the Consumer Price Index (CPI) released by the U.S. Bureau of Labor Statistics instead of being pegged to a fiat currency. That sets it apart from current stablecoins such as Tether or USDC, which track the dollar's price—and lose purchasing power as inflation climbs upward.
"In an era of uncertain monetary policy and geopolitical events, we believe Volt is in a powerful position to make an impact across DeFi by streamlining new and easily accessible forms of wealth preservation," said Framework Ventures co-founder Michael Anderson in a press release.
Volt is built on Ethereum and uses Fuse, an Ethereum-based open interest protocol that supports isolated interest rate markets, designed by Rari Capital. With isolated markets, each lending market is kept separate from other markets, meaning any changes to a market shouldn't affect the other markets in the Fuse ecosystem. Volt Protocol says its mainnet likely will launch in late April or early May.
Volt says it uses a Chainlink oracle to transmit CPI data to a Volt smart contract, an automated program that executes once specific criteria are met, where the current annual inflation rate is then stored. Each month, the target price of Volt updates according to changes in the annual inflation rate.
Volt claims to be backed by collateralized debt positions and stablecoins held in a peg stability module (PSM) that allows users to swap collateral types at a fixed rate. Those who wish to obtain or sell VOLT will be able to do so through the PSM or on a decentralized exchange.
Volt Protocol founder Kirk Hutchison explains that pegging Volt's value to an inflation index rather than a fiat currency will give any DeFi investor the ability to preserve the value of their wealth over time without actively managing their funds or worrying about fluctuating interest rates and volatility.
"One of our primary goals is the most scalable, stablecoin, and we're working on new mechanism types that will allow that," Hutchison told Decrypt in an interview.
Hutchison says that while Ethereum and Bitcoin are amazing assets, in his opinion, the top two cryptocurrencies by market capitalization are not suitable as money because they are fundamentally volatile.
Since their inception, that's been a common charge, as price jumps and crashes have kept digital currencies like Bitcoin from being used for everyday goods and services. Enter stablecoins.
A stablecoin is a cryptocurrency that is ostensibly backed by a real-world asset like gold, oil, or a fiat currency such as dollars or pounds, removing the volatility. Some stablecoins, such as Terra's UST or DAI, are not backed by such assets but instead use algorithms and other digital currencies to keep their pegs. Volt Protocol joins the growing list of stablecoins without a physical asset backing it, but Hutchison insists Volt is not just another algorithmic stablecoin.
"Volt is not algorithmic in the sense of some of these types of stablecoins that base their stability primarily on a hard-coded mathematical mechanism intended to regulate without any human input autonomously. I think they are very cool," he says. "But it can go wrong very easily."