Defi Index CVX Measures Crypto ‘Market Fear’ and Implied Volatility
The decentralized finance (defi) platform cvx.finance has launched the beta version of its “Crypto Volatility Index”, otherwise known as the “CVX.” The CVX is an index similar to the “Market Fear Index” (VIX) commonly used in traditional finance, but cvx.finance measures the suggestive volatility from bitcoin and ethereum options markets.
It’s still early but a new product has been launched that may be able to give cryptocurrency traders a rough idea of how the crypto market is feeling and if traders expect future price fluctuations.
The new service is a beta product produced by the cvx.finance platform and the creators claim the application is a decentralized version of VIX. The VIX is commonly used in traditional finance markets because it allows traders to hedge or to take profit from market volatility.
Basically, the CBOE Volatility Index (VIX) measures the market volatility of the S&P 500 Index options during the course of a 30-day timespan. Traders call the VIX a “fear index” and the index is calculated in real-time via CBOE’s exchange engine.
For instance, the higher the VIX is it means the S&P 500 is expected to decline and if the VIX drops then traders expect the S&P 500 index to remain relatively stable. The cvx.finance CVX refers to the crypto economy’s “Crypto Volatility Index” by measuring implied volatility via ethereum (ETH) and bitcoin (BTC) options markets.
“We have created CVX so that traders can hedge themselves against volatility or lack thereof,” explains the CVX documentation. “CVX is a full-scale decentralized ecosystem 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.”
The CVX developers detail that the project leverages a Black-Scholes option pricing model that is integrated with crypto market conditions. The project uses “Chainlink architecture with multiple oracles to retrieve the required data and calculate the formulated CVX using external adapters.”
Then the calculated results from each oracle are “aggregated, verified, and passed to the blockchain node so that the data can be accessed and used both by the requesting smart contract and as a service for other use case implementations.”
The Crypto Volatility Index creators stress:
The combined CVX index is a weighted sum of CVX indices calculated for several cryptocurrencies (for example BTC and ETH), where weights are based on the currency market cap.
At the time of publication, the CVX is awfully high and the previous hour saw a measurement of around 72.15.
Last week, the CVX saw a high of 72.4 and a low of 60.28, which shows that traders seem to be fearful of increased volatility judging by the CVX. Since the start of the CVX’s measurements of implied volatility, it seems like there’s a direct inverse correlation between bitcoin’s (BTC) spot market prices and the CVX index.
Another index, hosted on the web portal alternative.me called the “Crypto Fear & Greed Index” (CFGI) is a plot of the fear and greed index over time.
“A value of 0 means ‘extreme fear,’ while a value of 100 represents ‘extreme greed,’ according to the web portal’s index description. Currently, the CFGI is beyond “fear” at the moment and the metric is in the “greed” zone with a value of around 71.
What do you think about the CVX index? Let us know what you think about this subject in the comments section below.
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