In short, Volt is an algorithmic stablecoin protocol that bases its stablecoin’s value on overcollateralized loans. That’s as simple as I can describe it, but it’s still a mouthful of cryptic sh*t. Let’s break it down into parts.

Volt is a fork of RAI by Reflexer Labs, and RAI is a fork of MakerDAO. If you don’t know what fork is: it’s I take your code, add my bells and whistles and make a slightly different product. Hence, the best place to start is MakerDAO and DAI.

If you haven’t used MakerDAO (which I don’t judge given et hirium transaction fees), you may still know how it works if you ever minted Magic Internet Money (MIM) on Abracadabra. If all that sounds like alien lingo, it’s about to start making sense.

MakerDAO is one of the oldest decentralized stablecoin projects. The idea is to create a dollar-pegged asset with value based on decentralized assets. That’s in contrast to centralized stablecoin providers like Tether, which have a model of backing every USDT with $1 worth of cash (lol).

The core idea of MakerDAO isn’t much different from that of Tether, tho. You have a treasury of assets and issue stablecoins against them. However, since your assets are volatile coins like ETH, you need a margin of safety to ensure that people who show up to redeem 1 DAI for $1 worth of ETH will always be able to do that.

Again, if Tether is promising you that you can redeem 1 USDT for one dollar, MakerDAO promises that you can redeem 1 DAI for $1 worth of ETH. The latter part here is an oversimplification, but it was true during the times MakerDAO only had ETH as collateral.

While Tether can have 1-to-1 reserves of USDT and USD, MakerDAO can’t. It has to have more ETH than DAI to ensure that the amount of ETH in the system is enough to ensure all DAI can be redeemed if the market plunges.

That’s why when people mint DAI, they can’t mint the exact value they lock up. If you have 1 ETH that costs $4,000, you can safely mint only about 2,000 DAI.

Without getting too much into its weeds with introducing slang like “loan-to-value and liquidation ratio”: if ETH goes down and you have too many DAI minted against your ETH, MakerDAO will take your money away.

Wut? Yes, your ETH will be gone in the process called “liquidation”. No worries tho, cuz you still have DAI in your pocket, so it’s not like you lost it all.

Since RAI is a fork of DAI and Volt is a fork of RAI, Volt has the same system to mint its stablecoin. Lock up your assets (ETH, gOHM, etc.) and get back some portion of their value in the form of stablecoins.

“Algorithmic” means that there’s some automation based on some algorithm.

Algo-stables were very hot at some point until many of them showed that algorithms powering them were far from perfect.

Still, it doesn’t mean that every algorithm sucks. The one RAI uses has been around for over a hundred years. It’s called PID Controller.

I will do my best to simplify PID, but you don’t have to get it 100% to make sense of Volt. The system has three formulas (that’s what PID stands for) that it uses to constantly modify its output based on the input it receives.

Each of the formulas has a constant number that someone else had to set to tune the system. The goal is to make it react to external changes fast enough, but not too fast, so it doesn’t do unnecessary or even harmful work. Take a look at this video to understand the process. Seriously, it will help.

PID Controller in RAI regulates redemption price based on the information it gets from the outside world about the market price of ETH. If ETH spikes or nosedives at any given moment, nothing happens to the redemption price. However, if ETH continuously increases in value, RAI grows slowly too.

Again, this happens because the algorithm is set to make adjustments to the redemption price of RAI only so often to track the value of ETH, but not too often. So, the short-term volatility isn’t captured.

RAI isn’t dollar-pegged. Its value was manually set at the protocol’s start and has been maintained by the algorithm from thereon. Hence, you can think of it as “ETH with volatility removed”, which in a sense is a stablecoin.

Unlike other algo-stables, RAI has shown good results.

Now that you understand what RAI is in a nutshell, Volt should click.

Volt is a fork of RAI, so it takes some assets in and enables users to mint stablecoins against those assets. The stability of stablecoins is powered by the PID Controller.

Now, let’s see what Volt adds on top of the existing RAI model. First, it adds more collateral types.

RAI can only take ETH. When the project’s founder, Stefan Ionescu, was asked about the possibility of adding other assets, he said that it might be possible in the future. Still, he wasn’t sure if it would be implemented. So, Volt will likely do it first.

According to the recent AMA with Volt’s founder, Kirk, the platform will take gOHM and yield-bearing assets as collateral.

Having yield-bearing assets is an interesting idea, in my opinion, because it should make loans safer over time. Think about it: your collateral grows in value, which means that it’s higher above the threshold where your position can be liquidated.

Next, Volt plans to modify RAI’s governance model. People behind RAI aren’t big fans of governance, which is why their goal was to minimize human interaction as much as possible and make the protocol self-sustained.

While this may be a good idea, given the overall inefficiency of on-chain voting, it also may not be the best idea, especially if you wanna have more than one type of collateral.

Volt notes from Tokemak’s playbook and wants to introduce the system, where people will be able to stake tokens to signal that they want to do something with it, like adding new collateral type or changing system parameters.

This isn’t like on-chain voting, which requires many people to come together and make some decisions. It’s more flexible because the threshold for staking may be low enough to enable a subset of platform uses to make modifications to Volt.

Wrongdoing, in this case, is prevented by slashing. So, if you stake to add a shitcoin as collateral, you get penalized and lose money. Moreover, if other community members notice you doing some BS, they will kick you out, called “guild kick”.

But the greater vision for governance is that other DAOs will take part in that and decide which types of collateral will develop the most on Volt. For that, they will need to bribe Volt governance participants to favor their tokens. Ever heard of Curve Wars? I think that’s going to be interesting.

Finally, Volt will start on Arbitrum and expand to other L2s (if they are decentralized like roll-ups, not some centralized sh*t like Binance “Smart” Chain). This should help bring small fish to use the product. This is good because the more you use it, the more you understand how it all works.

At this moment, the project is in a very early stage of development, and there’s no product to play with. There’s also no typical Discord role program to win whitelist spots.

However, I think it’s still a good idea to keep tabs on Volt. It will have a liquidity mining program, which I believe will be worth participating in.