The Defi CVX Index measures the “fear of the market” and the implied volatility of cryptocurrencies

The decentralized finance platform (defi) cvx.finance has launched the beta version of its “Crypto Volatility Index”, otherwise known as “CVX”. CVX is an index similar to the “Market Fear Index” (VIX) commonly used in traditional finance, but cvx.finance measures the suggestive volatility of the bitcoin and ethereum options markets.

It’s still early days, but a new product has been launched that may be able to give cryptocurrency traders a rough idea of ​​how the cryptocurrency market is feeling and whether traders are expecting 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 financial markets because it allows traders to hedge or profit from market volatility.

Basically, the CBOE Volatility Index (VIX) measures the market volatility of the options in the S&P 500 Index over a 30 day period. Traders call the VIX a “fear index” and the index is calculated in real time via CBOE’s trading engine.

For example, the higher the VIX means the S&P 500 is expected to fall and if the VIX falls, traders expect the S&P 500 to remain relatively stable. The cvx.finance CVX refers to the “Crypto Volatility Index” of the crypto economy by measuring implied volatility via the ethereum (ETH) and bitcoin (BTC) options markets.

“We created CVX so that traders can protect themselves from volatility or lack thereof,” explains CVX’s documentation. “CVX is a large-scale decentralized ecosystem that brings the sophisticated and very popular ‘market fear index’ to the cryptocurrency market and is created by calculating a decentralized volatility index from the prices of cryptocurrency options along with analyzing market expectations. of future volatility “.

CVX developers specify that the project leverages a Black-Scholes option pricing model integrated with crypto market conditions. The project uses “the Chainlink architecture with multiple oracles to retrieve the required data and calculate the CVX formulated using external adapters”.

Then the results calculated by each oracle are “aggregated, verified and passed to the blockchain node so that the data can be accessed and used by both the requesting smart contract and as a service for other use case implementations.”

The creators of the Crypto Volatility Index point out:

The combined CVX index is a weighted sum of CVX indices calculated for different cryptocurrencies (e.g. BTC and ETH), where the weights are based on the currency market capitalization.

At the time of publishing, 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 fear more volatility judging by the CVX. Since the start of CVX implied volatility measurements, there appears to be a direct inverse correlation between bitcoin (BTC) spot market prices and the CVX index.

Another index, hosted on the alternative.me web portal called “Crypto Fear & Greed Index” (CFGI), is a plot of the index of fear and greed over time.

“A value of 0 means” extreme fear “, while a value of 100 represents” extreme greed “, according to the description of the web portal index. Currently, the CFGI is beyond” fear “at the moment and the metric is in the “greed” zone with a value of about 71.

What do you think about the CVX index? Let us know what you think about this topic in the comments section below.

Image credits: Shutterstock, Pixabay, Wiki Commons, CVX, cvx.finance,