DeFi Protocol Voltz Opens Door for Passive Traders With Liquidity Optimizer Vault

The new product will give traders the opportunity to earn passive liquidity provider returns without the risk of impermanent loss, Voltz's CEO said.

AccessTimeIconNov 1, 2022 at 4:00 p.m. UTC
Updated May 9, 2023 at 4:01 a.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

Providing liquidity on the decentralized finance (DeFi) interest rate swap protocol Voltz in return for rewards no longer requires active management of the position.

On Tuesday, Voltz, which recently passed $120 million in cumulative trading, announced in a press release the launch of a liquidity provider (LP) optimizer vault in partnership with Mellow Protocol to allow users to provide liquidity passively.

  • Bitcoin Below $30K after Jobs Report Tops Expectations
    06:30
    Bitcoin Below $30K after Jobs Report Tops Expectations
  • VanEck CEO on Why the Talk About ‘Recession’ May Begin Later in the Year
    06:31
    VanEck CEO on Why the Talk About ‘Recession’ May Begin Later in the Year
  • Bitcoin Price Recovering to $44K Level After Slight Pullback
    07:33
    Bitcoin Price Recovering to $44K Level After Slight Pullback
  • Ether, Altcoins Tank, With Bitcoin as Decoupling Narrative Goes Up in Smoke
    07:46
    Ether, Altcoins Tank, With Bitcoin as Decoupling Narrative Goes Up in Smoke
  • "This product will give traders the opportunity to earn passive LP returns without the risk of impermanent loss, an amazing development for Voltz and DeFi more broadly," Simon Jones, Voltz CEO and co-founder, said in a press release shared with CoinDesk.

    All that liquidity providers need to do is deposit an asset in the optimizer vault. The vault then takes care of optimizing the leverage, selecting the tick ranges and rebalancing liquidity into new ranges as the price moves.

    Liquidity providers on Voltz will not face impermanent loss, which occurs when the price of assets locked up in a liquidity pool changes after being deposited. That's because fixed and variable interest rates in a given Voltz pool are made in the same underlying asset. For instance, Voltz's staked ether (stETH) pool allows users to swap variable and fixed staked ether rates with leverage by depositing ether (ETH) as margin. Impermanent loss is common in DeFi pools that maintain a ratio of two assets.

    However, until now, liquidity providers had to actively manage the margin, leverage and the tick ranges – perhaps an entry barrier to those who don't have time to keep track of the three variables.

    "If you provide liquidity in narrow tick ranges, you also need to rebalance as the price on the virtual automated market maker moves. If you have the time to manage positions in this way actively, the flexibility is amazing and enables you to generate significant APYs," Jones told CoinDesk. "However, you are at a disadvantage if you don't have the time."

    Mellow Protocol, an automated DeFi Strategy builder, has its own liquidity provider optimizer strategy to solve this problem.

    The liquidity providers cannot withdraw funds until the end of the pool term. For instance, the stETH pool's tem ends on Dec. 31, which means users providing liquidity through the optimizer vault cannot withdraw their ETH before the new year.

    "Voltz Protocol launching the LP Optimizer Vault with Mellow Protocol eliminates barriers for traders while mitigating risks in a simplified process," Nick S, core contributor of Mellow Protocol, said in the press release.

    "The goal of Mellow is to build a robust ecosystem of tools for eliminating market inefficiencies while generating positive results for users. We believe LP optimization is pushing the boundaries of what was possible in TradFi and we're grateful to be working with the Voltz Protocol to advance the use case," Nick S, added.

    Disclosure

    Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

    CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

    Omkar Godbole

    Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.


    Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.