CVX’s new decentralized volatility index gives proper estimation of the risk measurement for the cryptocurrencies components and delivers market status information to potential traders.
By computing a volatility index (CVX) 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 to extract stable market implied volatilities.
CVX is the first full-scale decentralized platform to bring this sophisticated and very popular “market fears index” to the crypto market. CVX is DeFi.
We have created CVX 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 CVX index and overview the differences between the implementations and methods.
CVX Volatility index — General Comparison
As opposed to few other centralized indexes which only focus on bitcoin volatility index, CVX index calculation is performed by a decentralized network of Chainlink oracles that aggregate and calculate a combined weighted sum of CVX indices for several cryptocurrencies such as BTC and ETH, where weights are set in accordance to the asset market cap. To ensure decentralization and transparency, CVX uses Chainlink architecture with multiple oracles to retrieve the required data and calculate into the formulated CVX 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.
What is the difference between CVX and other platforms such as: LedgerX + T3, BVOL?
LedgerX is promoting a volatility index which 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 which 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, CVX 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 CVX index formula calculation as an additional data source. Since CVX offers a dynamically adjusted index which can rely on more than one source and it is not biased to a specific exchange or data.
In addition, the CVX implementation and protocol is fully decentralized and controlled by $CVX token holders and strongly incentivizes them to seek the optimal index formula. Any changes and additions are done under CVIP (Crypto volatility implementation proposal), which would include a voting period, and will not take immediate effect.
What is the difference between CVX and the “Fear and Greed index”?
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 to CVX. 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 a decentralized and dynamic, unbiased nor connected to any exchange. CVX is a full-scale decentralized platform that brings the sophisticated and very popular “market fear index” to the crypto market and is created by computing a decentralized volatility index from cryptocurrency option prices, together with analyzing the market’s expectation of future volatility. We believe that CVX provides the most reliable tool suitable to analyze volatility, hedge portfolios and earn from being a liquidity provider.