Volt#05: Capital Protection is now LIVE

Strategy

ℹ️ How does it work?

  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. 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).

~TLDR~

❓What does price hedge % mean?

📈 Strategy Payoff

Friktion Volt#05

Assumptions:

  • Epochs are 1 week long
  • Alice deposits $1,000 USDC
  • Lending rate for USDC is 4% APY
  • Half of each week’s lending yield is used to buy SOL put options, hedging against downside volatility
  • Tail risk hedge (weekly put options) bought has a strike of $30

Scenario 1: SOL price increases to $46 ( ↑ 15%)

  • If Alice held USDC in her wallet: her investment remains at $1,000
  • By depositing into Volt #05: she would earn $0.38 (+0.04%), making her position value $1,000.4!

Scenario 2: SOL price falls to $34 (↓ 15%), but above the put option strike price ($30)

  • If Alice held USDC in her wallet: her investment remains at $1,000
  • By depositing into Volt #05: she would earn $0.38 (+0.04%), making her position value $1,000.4!

Scenario 3: SOL price falls to $28 (↓30%) and goes below the put option strike price ($30).

  • If Alice held USDC in her wallet: her investment remains at $1,000
  • By depositing into Volt #05: she would earn $50.4 (+5.04% ), making her position value $1,050.38! Let’s break this down:
  • At time of deposit, SOL price was $40 which is equivalent to 25 SOL ($1,000 USDC deposit)
  • PnL from Volatility Protection = 25 SOL * ($30 — $28) = $50
  • PnL from (Lending Yield — Hedge Cost) = $0.77-$0.38 = $0.38
  • Total Volt#05 PnL = $50.4

📊 Backtest + Analytics

I’m in! How do I start?

  1. Head over to friktion.fi/protection
  2. Volt#05 is a Genesis Wielders exclusive (holders of our Lightning OG NFT)

About Friktion

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Friktion

Friktion

Friktion brings high quality portfolio management to DeFi.