Enterprise-based fintech platform COTI has rolled out a decentralized crypto market volatility index (cVIX) to help investors assess and quantify risks.

COTI's DeFi Volatility Market Index (cVIX)
Source: COTI
  • Launched Tuesday, the cVIX is explicitly designed for the decentralized finance (DeFi) market.
  • The index is created by computing a decentralized volatility index from cryptocurrency option prices and utilizes the Ethereum-based oracle network Chainlink as a source for required financial data.
  • The cVIX is similar to the stock market's VIX index, which indicates the level of implied volatility, or investors' expectations of how volatile the equities would be over a specific period.
  • Such indexes are sometimes referred to as "fear indexes" because they often reflect the market's worries about the underlying asset.
  • The index will initially support trades and deposits in ether (ETH) and stablecoin tether (USDT) and add other tokens shortly.
  • Traders can hedge themselves against a potential rise in market volatility by taking a long position in the cVIX.
  • Similarly, traders positioned for a spike in volatility by employing option strategies such as straddles (a simultaneous long position in both a call and a put with the same strike prices) can hedge against market stagnation or low-volatility period by taking short positions in the CVIX.
  • Extreme readings on cVIX could be considered as contrary indicators. In traditional markets, a bull run often ends with record-low readings on VIX indicators.
  • "cVIX can be used by liquidity providers who play the role of the insurance company and earn fees in the process. In the event of a trader buying a long or short on cVIX and losing the trade, liquidity providers are the ones to recoup the lost trade," the press release said.

Read more about...

VolatilityDeFi
Disclosure
The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.