The decentralized finance (DeFi) platform Voltz now enables users on the Avalanche network to trade swaps associated with the Secured Overnight Financing Rate (SOFR), a globally recognized standard for dollar rates.
The newly introduced feature is poised to allow investors to manage their vulnerability to fluctuations in interest rates. It also opens up opportunities for speculation on whether the rates will rise or fall, as per an announcement from Voltz on May 24.
Exploring the Newly Launched Feature
SOFR is the rate at which overnight loans are repaid by organizations using US Treasury bonds as collateral. Instituted as a replacement for the antiquated London Interbank Lending Rate (LIBOR), SOFR is a popular reference point for the computation of various other rates due to the shallow risk associated with loans backed by Treasury bonds. It’s worth noting that the Federal Reserve’s Federal Funds Rate exerts a considerable influence on SOFR.
In conventional finance, corporations have historically employed SOFR-based interest rate swaps to safeguard against rate variations. For instance, companies aiming to secure a loan could use these financial instruments as a shield against potential rate hikes by the Fed.
Democratizing Access to Traditional Instruments
This feature introduced by Voltz brings this staple of traditional finance to the Avalanche network, potentially expanding its accessibility to a broader set of investors.
Simon Jones, the CEO, and co-founder of Voltz Labs, expressed optimism that the new feature would contribute to bridging the gap between individual investors and large-scale institutions.
Everyone is exposed to what the Fed decides to do only a handful of institutions have access to interest rate swap markets that allow them to hedge that exposure, until now. Voltz makes traditional financial markets accessible on DeFi rails.
Simon Jones said.
The gradual and consistent integration of traditional financial instruments into the DeFi space is evident. For instance, securities broker-dealer INX made Greenbriar Capital shares available via Ethereum on April 3 and created a compliance-geared wallet for institutional usage. Subsequently, on April 27, Neobank launched a Soulbound token protocol aiming to streamline the DeFi Know Your Customer (KYC) procedure. Neobank hopes this protocol will facilitate greater cooperation between banks and the burgeoning Web3 ecosystem.
