Volatility Tokens Usability

The new CVI v3 offers two funnels to trade volatility: the first one is on the platform where you can Mint/Burn CVOL tokens, there is no price impact, and is characterized by low slippage. When a user wants to Mint/Burn a token, the user will have to wait for the “Receive in” time to elapse. The second funnel to trade volatility is through DEXs, trading on DEXs is characterized by regular slippage and price impact, while the fulfillment of the token is immediate.
The question is, Which funnel should be used and when?
  • If a user is of the opinion that volatility will rise in the next few days and the index will spike at some point, the user can mint it on the platform and wait for the right moment to burn/swap
  • If a user predicts that there is going to be an immediate spike in volatility and doesn’t want to wait for the fulfillment time to elapse, the user should buy CVOL on the DEX and Burn/sell it at the right time.
  • If a user plans to buy a large amount of CVOL but doesn't want to lose money due to price impact or slippage. The user can utilize the platform to Mint the tokens for low slippage and no price impact.

Arbitrageurs Playground

As the volatility tokens can be traded in both the CVI platform and Dexes such as SushiSwap, it creates a unique and incredible landscape for arbitrageurs to constantly build different strategies and profit from the price difference between both markets. This incentivizes the market to self-adjust while keeping the tokens pegged to the index.
In other words, the arbitrageur's role is to close the temporary differences between the Volatility tokens’ values in the primary and secondary markets, and profit while doing so by keeping the difference in value between both markets.

As shown in the image above, the main arbitrage opportunities in our Ecosystem are:

  • If the price of the volatility token is higher on the CVI platform, an arbitrager can purchase the volatility token with USDC at a lower price on Uniswap, go to the CVI platform and burn the tokens to gain more USDC than the amount he had prior to the process.
  • If the price of the volatility token is lower on the CVI platform, an arbitrager can mint the volatility tokens (by paying USDC), followed by selling the tokens on Uniswap to gain more USDC than the amount he had prior to the process.
These arbitrage opportunities will ensure the price of the Volatility Token on the secondary market is closely tied with the one on the primary platform, thus reflecting the relevant CVI Index.
In addition, arbitrage-related operations on the main platform (mint \ burn) will result in an increase of collected fees distributed to GOVI stakers in the platform.