The Crypto Volatility Index Aims To Become A Force In DeFi Markets In 2022
COTI’s Crypto Volatility Index project is seeking greater relevance this year, with a number of big updates set to arrive that will entice more investors to bet on the ups and downs of the crypto market.
The CVI is designed for DeFi users to hedge against or profit from the extreme volatility of cryptocurrency markets. It can be thought of as a crypto-oriented version of the S&P’s 500 Volatility Index (VIX), which is a real-time market that tracks the market’s volatility expectations over the next 30 days.
COTI said in a blog post on Medium it created the CVI to provide a way for DeFi market participants to trade and take positions on the perceived volatility of the crypto market. The platform debuted last year and has already proven to be a big hit, with more than $13.4 million in total value locked so far.
CVI has already launched a number of new features so far in 2022, including CVI Staking V2 on Polygon and Arbitrum, giving users a way to avoid the high gas costs of Ethereum that would otherwise eat away their profits. It’s also made inroads on governance with its first community vote, which will lead to the imminent launch of Liquidity Bonding. Further, it has introduced GOVI staking V2, ensuring a weekly distribution of 28,000 $GOVI governance tokens on Polygon and Arbitrum each week, plus a $GOVI buyback program that sees 85% of the platform fees used to by $GOVI tokens on the market and distributes them to traders, liquidity providers and $GOVI stakers as rewards.
What’s Coming Next?
The next big update for CVI will be the introduction of auto-compounding of $GOVI staking rewards. With this, stakers will see the rewards they accumulate automatically compounded on the platform. This will mean every staker will see increased rewards without the need to constantly claim them and then re-stake their $GOVI tokens each time they collect.
“In the long run, the auto-compounding feature will save our community both time and money (through reduced network fees) while ensuring token appreciation,” CVI explained in the blog post.
That’ll be followed by the highly anticipated debut of liquidity bonding, something that was voted for by the community earlier this month. Set to launch in the next few days on both Ethereum and Polygon, the Olympus Pro bond program will give the CVI protocol a way to own and manage its liquidity and create an additional source for the index. With it, users will be able to trade $GOVI tokens at a discounted rate, generating more trading fees that will add more value to the CVI treasury. Another benefit will be better exposure to ETH paired assets in liquidity pools.
No doubt, investors will also look forward to the promised impermanent loss protection feature that will arrive in Q2. “Our impermanent loss protection will enable liquidity providers to limit their exposure to the volatility of their underlying token deposits,” CVI said.
More exciting though will be the launch of the Theta Vault, also promised for the next quarter. This is the next evolution of CVI’s liquidity pools and will enable CVI to tap into liquidity on third-party decentralized exchanges. CVI reckons this will deliver two key benefits, the most important of which is greater scalability and deeper liquidity for its volatility tokens, which provide investors with a novel way to trade the crypto market’s volatility.
As CVI explains, deeper liquidity is essential because it results in less slippage when traders swap tokens. But providing liquidity for CVI’s volatility tokens is tricky. Uniquely among tokens, they incur funding fees, meaning they’re not designed to be held by anyone for a significant length of time. So it becomes impossible to scale up their liquidity in DEXs without a mechanism that enables volatility tokens to be paired for longer periods of time. Theta Vault provides a way to do this with its unique design.
The second major benefit it brings is additional rewards for liquidity providers. Because the LPs will be able to hold volatility tokens on DEXs without incurring fees, they’ll benefit from receiving fees for each swap, meaning a second profit stream besides the usual rewards for staking.
“By depositing to the vault, LP’s will be in a position to receive both the staking GOVI rewards and also the DEXs liquidity pool fees,” CVI explained.
That promises to be a big deal, but CVI insisted it won’t let up. By the time the third quarter comes around, it said it would be ready to launch its first multichain VOL tokens, another industry first. These will build on the release in November last year of its first volatility tokens – ETHVOL on Ethereum and CVOL on Polygon – and are designed to reduce the friction for users who want to migrate tokens from one chain to another. CVI said the first multichain VOL tokens would launch on Arbitrum and other networks, with a compatible Theta Vault applicable to each one.
The last major update of the year will see the arrival of leveraged volatility tokens in the fourth quarter. CVI’s ultimate goal is to create an ecosystem for the crypto volatility market that’s equivalent to that of the VIX. Its leveraged volatility tokens will be the equivalent of leveraged ETNS, the most widely used product on VIX. With their promised high capital efficiency, traders and hedgers will have the opportunity to make short term trades on volatility and intraday trading, meaning more opportunities to amplify their profits.
