How Is CVI Different From Other Indexes?
The CVI Indexgives proper estimation of the risk measurement for the cryptocurrencies components and delivers market status information to potential traders.
By computing an index from cryptocurrency option prices, we analyze the market’s expectation of future volatility. Our method addresses the challenging liquidity environment of this young asset class and allows us to extract stable market implied volatilities.
CVI is the first full-scale decentralized platform to bring this sophisticated and very popular “market fears index” to the crypto market. CVI is DeFi.
We have created this ecosystem with great appreciation for any tools that can assist traders with analyzing the markets. With that in mind, in the following article, we examine previous work in the space to the new CVI index and overview the differences between the implementations and methods.
As opposed to a few other centralized indexes which only focus on bitcoin volatility index, CVI index calculation is performed by a decentralized network of Chainlink oracles that aggregate and calculate a combined weighted of several cryptocurrencies, such as BTC and ETH, where weights are set in accordance to the asset market cap.
To ensure decentralization and transparency, CVI uses Chainlink architecture with multiple oracles to retrieve the required data and calculate it into the formulated CVI using external adapters. The calculated results from each Oracle are aggregated, verified, and passed to the blockchain node in a fully decentralized manner. In that sense, CVX is real DeFi.
LedgerX is promoting a volatility index that will be part of their platform. The index is a centralized implementation. In addition, the turnover on the platform is low (without futures) so it can’t efficiently do market making as Deribit and therefore can’t offer a reliable indicator for volatility. The only possible volatility index for the crypto markets must be a decentralized and dynamic volatility index that is not biased nor connected to a certain exchange.
The BVOL Token, similarly to ledgerX, is based on a centralized source (FTX exchange) and therefore cannot serve as a decentralized and reliable indicator.
As opposed to the above indexes, CVI is built to work well with all new and upcoming volatility indexes. Once the FTX BVOL or LedgerX index gains enough volume, it can be added to CVI index formula calculation as an additional data source. Since CVI offers a dynamically adjusted index that can rely on more than one source and it is not biased to a specific exchange or data.
In addition, the CVI implementation and protocol is fully decentralized and controlled by $GOVI token holders and strongly incentivizes them to seek the optimal index formula.
The fear and greed index is a centralized index, which combines social media and search trends with price average calculations. As such, though very interesting to follow, it is very different from CVI.
Currently, it consists of a combination of calculations — including the ratio of current Bitcoin price to its latest average, volume, google search results and according to its recent publication will soon add Reddit posts analysis. At present, it does not rely on option pricing, which is the most relied upon indicator of volatility in traditional finance.
The crypto market needs a volatility index that is decentralized and dynamic, unbiased nor connected to any exchange. We believe that CVX provides the most reliable tool suitable to analyze volatility, hedge portfolios, and earn from being a liquidity provider.