COTI Launches Decentralized 'Fear Index' for DeFi Markets

"Traders can hedge themselves against a potential rise in the DeFi market volatility by taking a long position in the cVIX," according to COTI.

AccessTimeIconOct 13, 2020 at 1:13 p.m. UTC
Updated Sep 14, 2021 at 10:08 a.m. UTC
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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)
COTI's DeFi Volatility Market Index (cVIX)
  • 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.

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