DeFi protocol Voltz launches SOFR swaps on Avalanche

Thanks to the Voltz decentralized financing protocol, Avalanche users can now trade interest rate swaps from the Secured Overnight Financing Rate (SOFR), a benchmark dollar rate used throughout the global economy.

The new feature allows investors to hedge their exposure to interest rate changes and allows speculators to bet on whether rates will go up or down, according to a May 24 announcement from Voltz, seen by Cointelegraph.

SOFR is the overnight loan interest rate paid by institutions when they use US Treasury bonds as collateral. It was created to replace the older London Interbank Lending Rate (LIBOR). Because loans backed by government bonds are considered very low risk, SOFR is often used as a benchmark to calculate other rates. SOFR is heavily influenced by the Federal Funds Rate set by the Federal Reserve.

In traditional financing, companies have been using interest rate swaps based on SOFR for years to protect themselves against interest rate fluctuations. For example, a company that wanted to borrow money could use these products to protect against rate hikes by the Fed.

The Voltz feature makes this traditional financing product available on the Avalanche network, potentially opening up its use to a wider range of investors.

Related: Avalanche introduces ‘Evergreen’ subnets to connect institutions on blockchain

Simon Jones, CEO and co-founder of Voltz Labs, said the new feature would help level the playing field between retail investors and large institutions.

“Everyone is exposed to whatever the Fed decides to do [but] only a handful of institutions so far have access to interest rate swap markets that allow them to hedge that exposure,” he said. According to him, the launch of the Voltz protocol “makes traditional financial markets accessible on DeFi rails.”

Traditional financial products are slowly but surely making their way to DeFi. Stock broker-dealer INX launched shares of Greenbriar Capital via Ethereum on April 3, developing a compliance-friendly wallet for institutions to join. On April 27, Neobank released a Soulbound token protocol to simplify the Know Your Customer process for DeFi. Neobank hopes the protocol will enable banks to integrate more with the growing Web3 ecosystem.