Introducing Volt #05: Capital Protection

4 min readJul 20, 2022

We’re excited to introduce Friktion’s newest portfolio product — Volt#05: Capital Protection! Designed to generate returns in volatile market conditions while offering protection on deposited principal. This article is Part I of a series on Friktion’s Volt#05.

Volt #05 is the first DeFi product to give access to principal protection and long volatility. It combines yields from lending (interest payments) and tail risk protection from volatility products (options) into a single, powerful DeFi product. Key features include:

  • Deposit value is protected — meaning loss is limited to the interest generated. Principal value cannot fall below deposit amount (subject to lending platform risks).
  • Earn in volatile markets with systematic exposure to convex instruments such as call/put options that payout during sharp market moves.

Volt#05 will launch exclusively for Genesis Wielders — holders of Friktion’s Lightning OG NFT

TL;DR — Volt#05 generates returns in volatile markets while keeping principal (deposits) protected. Performs best in rising interest rate and high volatility environments.

Friktion Volt#05: Capital Protection — Payoff

New to Friktion? Learn about Volts

Principal protection is critical to survive and thrive in volatile markets as it can increase a portfolio’s diversification and improve risk-adjusted returns. However, most hedges are costly, hard to design, and don’t scale. A common experience when utilizing systematic hedges is “bleed” — referring to the continuous cost paid to hedge (via premiums) often resulting in a long, gradual decay in value.

Volt Flow — how is capital deployed?

  1. User deposits USDC or SOL into Volt#05 — assets will be deployed following a weekly Epoch system. The first deposit assets accepted will be USDC (a fully collateralized stablecoin pegged to the US Dollar) and SOL (Solana). The strategy will expand to a variety of assets in the future.
  2. Volt lends Deposit Asset (USDC or SOL) to generate continuous interest payments. Friktion is leveraging Tulip, Solana’s leading lending aggregator, which optimizes across utilization rate based lending platforms in which borrowers are overcollateralized.
  3. Each week (Epoch), interest earned from lending is systematically allocated to a strategy which provides Volatility Protection, in the form of a basket of call or put options. Using Channel, Friktion’s RFQ engine, this Volt access the deepest markets for options in DeFi+CeFi. During periods of elevated market volatility, the options will outperform.
Friktion Volt#05: Capital Protection — Strategy

Volt Risks

As with any form of yield in DeFi, risks still exist and are described below:

  • Borrow/lending smart contract risk: Friktion addresses this by composing with protocols that have been battle tested, audited multiple times, and are transparent with performance data.
  • Lending optimizer rebalancing logic: Tulip was carefully selected based on their rebalancing logic, risk management, and transparency. Notably, Tulip’s Strategy Vault had 0% exposure to Solend during a recent spike in pool utilization.
  • Friktion smart contract risk: Volt#01 and #02 have been audited with no critical or high severity issues found and the results are available here. Volt#05 will be unaudited software on launch.
Friktion Volt#05: Capital Protection — Risks

Exclusively for Genesis Wielders

Friktion Volt#05 will launch for Genesis Wielders — holders of the Lightning OG NFT.

We’re honored to have a fantastic community within Friktion who share great product feedback, drive feature recommendations, and are actively learning about DeFi together. Looking forward to having you!

Learn more about Lightning OGs and get yours here make sure to verify your OG in Discord to join our Genesis Wielder community.

How to Participate?

Next: Volt Launch imminent

In the next part of our series on Friktion Volt#05, we will be exploring historical performance during times of volatility, strategy payoffs, and a deeper dive into risk management.

Keep a keen eye on our Blog and follow Friktion on Twitter to catch the next update and Volt Launch!

TL;DR — Volt#05 generates returns in volatile markets while keeping principal (deposits) protected. Performs best in rising interest rate and high volatility environments.

About Friktion

Friktion is Solana’s leading protocol for risk-managed yield strategies. Friktion’s 5 core products, known as Volts, are building blocks of DeFi portfolios that perform across market cycles. The platform has amassed over 17,000 users and traded >$2bn in volume. The protocol’s mission is to enable access to long-term sustainable DeFi yields.

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Friktion brings high quality portfolio management to DeFi.