An interesting feature is that liquidity providers on CVI play the role of the counterpart for every trade made on the platform. In other words, if a trader bought insurance against volatility or against stagnation, the liquidity providers play the role of the insurance company. This is a great position to be in as it is much more lucrative than simply providing liquidity for a small fee and being at risk of impermanent loss. Volatility is also a way to gauge market sentiment, especially fear among investors. The most famous way we measure how fast prices change in the stock market is the Cboe Volatility Index .
In light of the recent volatile and bloody markets after a year of bullish market structure, this is clearly a new tool for DeFi portfolios to hedge their positions. Besides trading the index, users can also participate by providing liquidity to the platform. Liquidity provision is currently available in CVI/USDC and CVI/ETH and LP providers receive rewards in the form of $GOVI tokens.
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Along with the recent migration from USDT to USDC and a recent integration with investing.com, the founders of CVI have announced the implementation of new and exciting features for the protocol. CVI was developed and launched on the Ethereum MainNet on January 20th, 2021 by the COTI team in collaboration with Professor Dan Galai, creator of the VIX and part of the CVI board of advisors.
CVI uses a Chainlink-powered decentralized oracle network to aggregate options market data from multiple off-chain sources and deliver it on-chain. The Index allows DeFi users to either hedge against or profit from volatility in the crypto market. Then specify whether to mint the ETHV + iETHV or BTCV + iBTCV indexes. GOVI allows its holders to collect platform fees by staking the token.
Traders are able to use the index as a tool to either speculate or hedge on their portfolio if they think the volatility in crypto is going to increase. This is yet another money lego that mirrors a popular product and concept in legacy finance, which is sure to draw the attention of even more investors interested to move assets to DeFi. The Volmex protocol has already been used to create volatility indexes and tradable tokens for ETH and BTC.
- This result shows that Bitcoin volatility is closely linked to global economic activity.
- Users can open a position on the CVI platform by simply connecting to their MetaMask browser extension and either selecting the buy or sell option depending on which side of the volatility they want to trade.
- Using the prices of SPX index options with near-term expiration dates, the VIX provides a 30-day forward projection of volatility.
- The CVI project is governed by the $GOVI token and holders of the token are able to vote on matters such as leverage use, platform fees, deposit use, and tradable assets.
- CVI uses Deribit exchange as its main data source for the index calculations as it is the most advanced and widely adopted platform for derivatives and options.
- GOVI allows its holders to collect platform fees by staking the token.
Dubbed the world’s greatest hedge fund, Medallion has received permission to trade Bitcoin… Since the CVI was developed entirely by the COTI team, at the beginning, COTI holders were the main Crypto Volatility gainers from the GOVI airdrop, but now every GOVI holder can earn from staking GOVI in the platform. Then, specify how much USDC or ETHV to deposit and it will autofill the other token.
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Now anyone outside the United States can access Volmex’s app, and with a minimum of 25 DAI, mint proportional amounts of volatility index tokens and inverse volatility index tokens . What we haven’t managed to build in DeFi until recently is a volatility index natively built with smart contracts. Volmex.finance is just that–a protocol for tokenized volatility, built on Ethereum. Volmex enables VIX-like indices for crypto assets and trading functionality. We strongly recommend that you consult a licensed investment advisor or other qualified financial professional if you are seeking investment advice on an ICO, IEO, or other investment. We do not accept compensation in any form for analyzing or reporting on any ICO, IEO, cryptocurrency, currency, tokenized sales, securities, or commodities.
Finally, we find a strong positive association between the Baltic dry index and long-term Bitcoin volatility. This result shows that Bitcoin volatility is closely linked to global economic activity. Overall, our findings can be used to construct improved forecasts of long-term Bitcoin volatility. In an effort to make the user experience more affordable without sacrificing the underlying security features of the Ethereum mainchain, the team is also planning to deploy CVI on to the Optimistic Rollup chain Arbitrum. The CVI is created by computing a decentralized volatility index from cryptocurrency option prices together with analyzing the market’s expectation of future volatility.
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In addition, users can also benefit from a more cost friendly and almost instant experience by using the platform on the Polygon sidechain. The Crypto Volatility Index is a decentralized solution used as a benchmark to track the volatility from cryptocurrency option prices and the overall crypto market. Neither of these volatility indexes currently provide for liquidity mining rewards, but one might speculate that Volmex will eventually launch a governance token and reward early LPs. The volatility index token and inverse volatility index token are two parts of a whole, which together can be redeemed for proportional DAI collateral required to mint (less a 0.3% redemption fee). We do not give personalized investment advice or other financial advice. The information on this website is subject to change without notice.
The long volatility index token aims to track the volatility index price. If the Ethereum Volatility Index is priced around ~110%, then the index token ETHV token should trade around $110. Conversely, the inverse volatility index token should trade around $140. Depending on whether you minted ETHV or BTCV, go to the Volmex Pools page and choose the 2 appropriate pools to provide liquidity. In my example, I’ll deposit into the ETHV/USDC and iETHV/USDC Uniswap v3 pools.
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Using the prices of SPX index options with near-term expiration dates, the VIX provides a 30-day forward projection of volatility. We use the GARCH-MIDAS model to extract the long- and short-term volatility components of cryptocurrencies. As potential drivers of Bitcoin volatility, we consider measures of volatility and risk in the US stock market as well as a measure of global economic activity. We find that S&P 500 realized volatility has a negative and highly significant effect on long-term Bitcoin volatility. The finding is atypical for volatility co-movements across financial markets. Moreover, we find that the S&P 500 volatility risk premium has a significantly positive effect on long-term Bitcoin volatility.
What Does The Platform Hold For The Future?
Some or all of the information on this website may become outdated, or it may be or become incomplete or inaccurate. We may, but are not obligated to, update any outdated, incomplete, or inaccurate information. Along with that comes the implementation of leveraged volatility tokens (ETHVOL-X2 and ETHVOL-X3) which will be supported within the same available liquidity pools and tradable in different DEX environments. In order to ensure decentralization and transparency, Chainlink architecture uses multiple independent oracles that use external adapters to retrieve trading options data from across the market in order to calculate the CVI. CVI uses Deribit exchange as its main data source for the index calculations as it is the most advanced and widely adopted platform for derivatives and options. The CVI project is governed by the $GOVI token and holders of the token are able to vote on matters such as leverage use, platform fees, deposit use, and tradable assets.
Initially, the $GOVI token was airdropped to $COTI holders and can only be claimed by using the CVI platform. Users can open a position on the CVI platform by simply connecting to their MetaMask browser extension and either selecting the buy or sell option depending on which side of the volatility they want to trade. The index functions as a crypto version of the VIX (The S&P 500 Volatility Index), a real-time market index representing the market’s expectations for volatility over the coming 30 days. To decide the price range, if you have equal proportions of the index token and USDC, use the toggles on the Min Price to move in -2% increments and equally on the Max Price, move the increments upwards in +2% increments. COTI is the project behind the development and deployment of the CVI, which has also launched a decentralized trading system that enables a permissionless way to enter long/short positions on the index. Renaissance Technologies’ flagship Medallion fund has returned 24% year-to-date while most institutional funds have taken a beating.
The first, is the launch of volatility tokens via CVOL and ETHVOL . These tokens can be understood as being a wrapper for opening a long position on CVI and are tradable on Ethereum compatible DEXs. The tokens maintain their peg to the value of the underlying asset by following a rebase mechanism with a similar architecture https://xcritical.com/ to that of tokens like Ampleforth. The volatility tokens can be used to benefit from arbitrage trading strategies on other compatible DEXs. In order to avoid high gas fees from using the platform on the Ethereum blockchain, the team has managed to release a contract optimization model to cut down gas costs by about 40%.