Volatility is treated as one of the young crypto market’s biggest challenges. Cryptocurrencies can reach their all-time high one minute, then lose more than half their value the next. This unpredictability creates a high-risk, high-return scenario, holding some investors back from entering the cryptoverse.
However, several decentralized finance (DeFi) initiatives have been introduced in recent months to help traders capitalize on the “volatility” of the crypto market itself. One such service that has become a dominant force in this vertical is the Crypto Volatility Index (CVI) project.
CVI enables users to transform infamous “crypto volatility” into assets. The platform has passed several milestones since the Crypto Volatility Index went live on the mainnet a year ago. These include the release of CVI Version 2.0, integration with DuneAnalytics and The Graph, project listing on DappRadar and DeFi Pulse, and the addition of the platform’s native $GOVI token on KuCoin, Orion Terminal, 1inch, and several other platforms.
Continuing this streak, CVI has now launched Volatility Tokens, ETHVOL and CVOL. The first-of-their-kind funding-fee-adjusted-rebased Volatility Tokens mark the emergence of a novel solution for trading crypto volatility.
The Concept of Volatility and Volatility Tokens
To understand the role (and importance) of volatility tokens, it is important to recognize the meaning of volatility in the context of cryptocurrencies.
Volatility measures how much an asset’s price has gained or lost during a specific period. Simply put, “volatile” assets also have the potential to generate outsized returns or severe losses over short spans, compared to other, less-volatile assets.
The Volatility Tokens launched by CVI come into the picture for traders seeking to capitalize on these dramatic price swings. Developed by COTI in partnership with VIX creator Prof. Dan Galai, the CVI is an instrument intended to help investors understand, trade, and hedge against crypto volatility.
The CVI is a decentralized version of the VIX by design, allowing users to hedge against volatile markets and impermanent losses. Just like the CBOE Volatility Index (VIX) tracks the S&P 500’s volatility, CVI tracks the crypto market’s volatility.
At its core, the CVI platform allows users to track and trade on the 30-day implied volatility of BTC (bitcoin) and ETH (ether) via its CVI Index. As part of its Version 2.0 upgrade, the CVI protocol has been expanded to Polygon and Ethereum chains, giving traders access to fast transactions and lower gas costs.
Volatility Tokens is the second significant addition in the CVI V2 upgrade, with the first token being ETHVOL and the other CVOL. These tokens are adjusted based on the funding fees and rebased to maintain their pegs with their respective indexes. As a result, both ETHVOL and CVIVOL tokens operate in the crypto market, similar to how VIX ETFs fluctuate relative to the traditional stock market.
ETHVOL, the first volatility token launched by CVI, maintains its peg with the platform’s latest ETHVI Index. Accordingly, it can be traded across Ethereum-based and EVM-compatible DEXs such as Uniswap, helping traders leverage the price difference between the CVI and the Uniswap platforms.
Likewise, CVOL is the second volatility token launched by CVI. It is pegged to the CVI Index and tracks the implied volatility of ETH and BTC. Currently, CVOL is available for trading on QuickSwap via the Polygon network.
Disclosure: At the time of publication, Reuben Jackson did not have a position in any of the securities mentioned in this article.
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