Volatility Tokens
Volatility tokens are a new Defi Primitive, adding a much sought-after innovation to Defi.
By buying and selling Volatility Tokens, traders can easily trade volatility on DEXs and even CEXs, making the Crypto Volatility Index (CVI) much more composable and accessible to the greater DeFi ecosystem.
The main difference between trading volatility in the platform and with the volatility tokens is that while the CVI platform is account-based, meaning each Long position is tied to a specific address similarly to most other DeFi protocols. The volatility tokens are tokenized long positions that can now be used as a lego piece inside other DeFi protocols. Users will be able to generate more yield on them, easily access them on Dexes and generate revenue by arbitraging.
Each CVI volatility token is created with a predefined leverage level, the first and main series of leveraged volatility tokens have x1/x2/x3 leverage levels. The ability to own a tokenized Long position on volatility with leverage is in many ways similar to the hugely popular VIX leveraged ETNs, which have an average daily volume exceeding $2 Billion. In addition, utilizing leveraged tokens increases the position's capital efficiency - which is a key requirement in DeFi.
The architecture of Volatility Tokens is based on the first of its kind - funding fee adjusted leveraged rebased volatility tokens.

Key ingredients of the Volatility Tokens:

  1. 1.
    Peg to the index via the CVI platform The CVI platform is in essence an AMM (Automatic Market Marker) that constantly sells volatility, while the volatility tokens represent a share in a shared pool of a LONG position. Whenever a token (either CVOL or ETHVOL) goes off-peg with its respective volatility index, an arbitrage opportunity is created. This allows the volatility tokens to be freely traded, while always remaining pegged to the index (Whenever a deviation from intrinsic value occurs, an arbitrage opportunity incentives a quick return to peg)
  2. 2.
    Accounting for time decay As a volatility index is range-bound (Historically the CVI index lowest value was around 50 and is capped by 200), creating a token that follows the index requires introducing a mechanism of value decay over time, without which a token holder would be able to hold the tokens indefinitely until it brings profit. (The "cost of time" is referred to as Theta in derivative-options terminology - which signifies the decrease in value over time). In order to account for Theta, the CVI tokens are adjusted by funding fees and rebased to keep their intrinsic value pegged to the index.

The Platform Currently Supports Two Volatility Tokens:

CVOL (Range bound 0-200): it’s the first volatility token in the market that is pegged to the implied volatility of both, Ethereum and Bitcoin, by being pegged to the CVI index. CVOL can be traded in the Polygon network on QuickSwap. By buying the token on a DEX, the user holds a LONG position on the CVI index.
The CVOL Pool on QuickSwap can be found here.
CVOL Icon
ETHVOL (Range bound 0-220): volatility token pegged to our new ETHVI index, which tracks the implied volatility on Ethereum. It can be traded on the Ethereum based DEX Uniswap V2, attracting the attention of traders and arbitrageurs when there is a difference in prices between the Uniswap and the CVI platform. By buying the token on a DEX, the user holds a LONG position on the ETHVI index.
The ETHVOL Pool of Uniswap can be found here.
ETHVOL Icon