cVIX AMA with Wolf Crypto
We held an AMA with cVIX in our public Telegram channel on October 13th.
cVIX 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.
By computing a volatility index (cVIX) from cryptocurrency option prices, cVIX analyzes the market’s expectation of future volatility and addresses the challenging liquidity environment of this evolving asset class, allowing for an extraction of the needed data to evaluate implied volatilities.
The cVIX index calculation follows the classic approach, based on the Black-Scholes option pricing model, adopted to the current crypto-market conditions, while working in a decentralized way. cVIX is an innovative decentralized, stable, transparent, informative and replicable benchmark for cryptocurrency implied volatility.
cVIX includes a decentralized governance component, where holders of the $CVIX token can vote on matters such as the tradable assets, leverage used, deposit amounts, platform fees and more.
By participating in the platform, by either trading on the platform or taking part in the governance of the platform, $CVIX holders will be able to -
- Vote to change the leverage
- Vote to change the fees
- Vote to change D0 (opening position deposit size)
- Vote to change Dmin (liquidation position deposit minimum level)
- Vote on changes to the data source and aggregation protocol
- Vote on trading platform changes and enhancements
- Holders will share platform fees
The $CVIX claims process will start on October 14th and will be available to $COTI holders who have mainnet $COTI tokens within the COTI Pay wallet. There will be eight claim periods for $CVIX tokens over the next eight weeks in which 10% of all $CIVX tokens (3.2m $CIVX) will be distributed to COTI holders. A minimum of 10K $COTI coins is required to make a claim, with this being limited to a maximum of 500K $COTI coins per wallet to ensure fairness. The first distribution of $CIVX is the biggest one with the following distributions 10% less each time, until all 3.2M $CVIX tokens designated for the claims process are distributed.
Users who don’t hold mainnet $COTI tokens in the COTI Pay wallet will also be able to claim $CVIX tokens by providing liquidity to the COTI/ETH Uniswap LP. 1.6m $CVIX tokens will be able to be claimed in this process, starting on Friday the 16th of October.
The $CIVX claim token distribution is according to the following formula —
CVIX distributed in the specific claim period * COTI amount in your participating address / total eligible users amount
You can learn more about cVIX here —
You can also visit the cVIX Telegram channel or the cVIX website for further details.
Here’s what cVIX’s Founder’s Shahaf Bar-Geffen and Dr. Nir Haloani had to say in the AMA.*
*This AMA has been edited for clarity.
WC (Wolf Crypto Telegram Member)
INTRODUCTION
Welcome to another edition of Wolf Crypto AMA…seems like we do an AMA every other day these days…
Joining us today are Shahaf Bar-Geffen and Dr. Nir Haloani, most of the community would know the both of you from COTI, but today you’re here for something a little different….
TEAM & TEAM GOALS
WC
Guys, as always, it’s a pleasure to have you here today in our channel.
Let’s keep the intro brief today as most should already know who you are and what you do in the space, but give me a quick TLDR on your respective backgrounds so we can get right into the fun stuff…
SBG
Hello everyone, I know most of you already know me so I’ll be brief.
I’ve been the CEO for COTI for three years now and was also part of the founding team. I’m also known as the founder of WEB3 group and of Positive Mobile (both of which were acquired). I have studied Computer Science, Biotechnology and Economics in Tel-Aviv University and have had a long Air Force career.
NH
Hi everyone.
I’m Dr. Nir Haloani, COTI’s CTO and joined the company from the very beginning. As part of my experience, I have a math PHD in Applied Mathematics, hold 14 patents and sold a company to IBM and was their Head of Research for 5 years.
WC
So tell me who else from COTI is involved in cVIX and is there anyone else outside of the COTI team also involved?
SBG
Most of the team is involved, however cVIX was conceptualized by Dr. Nir Haloani.
We were brainstorming about several DeFi ideas that align with COTI’s mission and cVIX was the one we thought that both made the most sense from COTI’s perspective, and also offered sufficient value to the overall crypto community. That’s a polite way of saying that unlike a lot of crypto projects releasing DeFi products, we didn’t want to release yet another Sushiswap clone and instead we wanted to offer something that would offer real value to the community that would be be long used, past any short term DeFi hype cycles.
From that point onwards, the R&D team have been working relentlessly to research, analyze and eventually develop the index. Our product team also got involved with the execution, alongside our financial team who created the $CVIX token model. So basically, everyone is involved!
We have been working together as a team for more than three years now, so we are very productive when it comes to manifesting great ideas to reality.
Outside of COTI, we have been keeping cVIX in a stealth mode. We have considered cVIX a secret project until today. In the past few hours we have been getting a lot of great feedback from the ecosystem in general and from the DeFi scene, and it looks like a lot of people want to start using cVIX and build around it.
WC
That’s a lot of COTI folk involved in the project, you guys aren’t abandoning COTI and moving onto a new project are you?
SGB
Of course not!
COTI is the homebase, the pillar on which everything we do stands on. We have been delivering a lot of products recently, COTI Pay VIPER, COTI-X, Blockchain Dollars and more, all while building cVIX. Our processing revenue from merchants continued to grow and a lot of exciting things are coming in COTI’s core business.
It is important to note that we have given $COTI holders the opportunity to be the first to own $CVIX tokens as we think due to their long term support of our project it is only fair that COTI’s community have the first opportunity to take part in $CVIX.
It’s a small way we can say thank you to our loyal community!
WC
In a similar respect, this doesn’t mean we’re going to see delays in the COTI roadmap as a result of “most of the (COTI) team” being involved in cVIX?
SBG
As I mentioned, we have been working around the clock to be able to both develop cVIX and meet our ambitious roadmap for COTI. We have been delivering non-stop and I don’t expect delays because we have added cVIX to the mix.
For those who may not know, Israel has been under a COVID lockdown for quite some time, so the upside to that is that it’s certainly given us more opportunity to develop and build both COTI and cVIX.
WC
Define to me as to what the current relationship is between COTI as a company and cVIX as a project is then?
SBG
cVIX is incubated in COTI. Our team is developing it. However, once it’s launched the code, the formulas, the adaptors, the oracles and everything else will be available on Github in a fully transparent manner.
At COTI, we have always taken pride in our role in revolutionizing the way traditional finance works. We see ourselves as pioneers, bridging the gap between traditional finance and digital finance.
cVIX is not an overnight forked project from an anonymous team or a short lived trend and is instead an innovative product and a useful trading platform accompanied with a sustainable token model.
We see cVIX as an additional utility for $COTI and an amazing value add for current token holders, as well as the crypto community as a whole.
We are proud of building it in a fully decentralized manner, for the benefit of the entire space.
WC
Explain to me how you can claim cVIX is a decentralised project when it has been conceptualised, developed and released by the COTI team?
SBG
Any decentralized project must begin in a centralized manner as someone needs to create it to begin with, that includes Bitcoin, Wikipedia and anything else that has been created by a single or group of human beings. But, if you build the right infrastructure for the project and the right incentivization for users to participate and help grow the platform, you can assure that everything afterwards happens in a decentralized manner.
We have placed a decentralised governance model into the smart contract itself and we’re giving 85% of $CVIX tokens to the general public that is involved with cVIX. $CVIX holders can vote to change all aspects of the protocol and will take all decisions with a vote.
This is also the reason why we didn’t do a fund raise or gave any advantage to whales, to have a fair distribution that put $CIVX tokens into the right hands, those of the community.
VOLATILITY INDEX’s — TRADITIONAL VS CRYPTO
WC
So before we get into what cVIX is, how about you give us some background on what the “real world” VIX is, what it’s used for and why crypto needs it’s own version of the VIX?
SBG
Most of us have heard of the VIX index in the stock market, the index that is sometimes referred to as the “Market Fear Index”, which measures the implied market volatility and acts as a counter index to the standard financial indexes that track upwards market movements.
Volatility is an important statistical measure of market behavior and the most common risk measure in financial theory. In plain words, if the volatility rises for the same asset or index, it means that the market becomes unstable.
So it is quite natural that the VIX has become one of the most quoted indexes and a cornerstone in many of the trading strategies relied on by professionals. Investors can use VIX to measure the level of risk, fear, or stress in the market when making investment decisions. Traders can also trade the VIX using a variety of options and exchange-traded products, or use VIX values to price derivatives and by doing so, can effectively hedge against the overall market.
The VIX index has paved the way for using volatility as a tradable asset via derivative products. CBOE launched the first VIX-based exchange-traded futures contract in March 2004, which was followed by the launch of VIX options in February 2006. Today, there are many VIX-linked instruments available for trading, including leveraged and short ETN/ETFs as well as futures/options on these instruments.
Such VIX-linked instruments allow pure volatility exposure and have created entirely new asset classes. Active traders, large institutional investors and hedge fund managers use VIX-linked securities for portfolio diversification, as historical data demonstrates a strong negative correlation of volatility to the stock market returns — that is, when stock returns go down, volatility rises and vice versa.
WC
Who are CBOE and what is their importance in the traditional finance world?
NH
CBOE is the world’s largest options market with contracts focusing on individual equities, indexes, and interest rates. CBOE is also the originator of the Volatility Index (VIX) which is the most widely used and recognized proxy for market volatility.
The VIX Index is the flagship index of the CBOE Global Markets’ volatility franchise. This includes volatility indexes on broad-based stock indexes, ETFs, individual stocks, commodities, and other specialty indexes.
WC
What are the actual mechanics of how the CBOE VIX works? How is it calculated…i.e what indices is the VIX index created from, and over what time period?
NH
VIX index values are calculated using the CBOE-traded standard SPX options (that expire on the third Friday of each month) and using the weekly SPX options (that expire on all other Fridays). Only those SPX options are considered whose expiry period lies within 23 days and 37 days.
While the formula is mathematically complex, theoretically it works as follows. It estimates the expected volatility of the S&P 500 index by aggregating the weighted prices of multiple SPX puts and calls over a wide range of strike prices. All such qualifying options should have valid non-zero bid and ask prices that represent the market perception of which options’ strike prices will be hit by the underlying stocks during the remaining time to expiry.
For detailed calculations with example, you can refer to the section “VIX Index Calculation: Step-by-Step” of the VIX whitepaper —
https://www.cboe.com/micro/vix/vixwhite.pdf
WC
Whitepapers exist outside of crypto? Well I’ll be damned…
So for those who might not be aware, can you give me a real world trading scenario in which the VIX is used?
NH
VIX-linked instruments have a strong negative correlation with the stock market, which has made them a popular choice among traders and investors for diversification and hedging, as well as pure speculation. By taking a position on the VIX, you could potentially balance out other stock positions in your portfolio and hedge your market exposure.
Let’s say that you have a long position on the stock of a US company that was a member of the S&P 500. Although you believe it has long-term prospects, you want to reduce your exposure to some short-term volatility. You decide to open a position to buy the VIX with the expectation that volatility is going to increase. By doing so, you might balance out these positions.
If you were wrong, and volatility didn’t increase, your losses to your VIX position could be mitigated by gains to your existing trade.
WC
Crypto already has a often quoted “Market Fear Index”…more commonly called the “Fear and Greed Index”…
Is this similar to the traditional VIX, and if not, why not?
SBG
As opposed to few other centralized indexes which only focus on bitcoin volatility index, cVIX index calculation is performed by a decentralized network of Chainlink oracles that aggregate and calculate a combined weighted sum of cVIX 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, cVIX uses Chainlink architecture with multiple oracles to retrieve the required data and calculate into the formulated cVIX using external adapters. The calculated results from each Oracle are aggregated, verified and passed to the blockchain node in a fully decentralized manner.
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 cVIX. 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 CVIX PLATFORM
WC
So with that background in mind, what is the cVIX?
SBG
The cVIX 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.
cVIX is an innovative, decentralized, stable, transparent, informative and replicable benchmark for cryptocurrency volatility information.
By computing a decentralized volatility index (cVIX) from cryptocurrency option prices, the new system analyzes the market’s expectation of future volatility. COTI’s method addresses the challenging liquidity environment of this evolving asset class and allows us to extract the needed data to evaluate implied volatilities.
In addition to the index itself, we will also introduce a fully decentralized and self-adjusting trading system that enables a permissionless way to enter long/short positions on the crypto volatility index, allowing users to hedge themselves from market volatility.
WC
So with context on both the CBOX VIX and the cVIX in hand, what commonalities does the cVIX share with the VIX and how does it differ?
NH
The cVIX index calculation follows the classic approach of the VIX and both are based on the Black-Scholes option pricing model. While cVIX mechanisms and calculations were adapted to the crypto-market conditions, while working in a decentralized way.
In addition to the calculations aspects which are similar to the traditional VIX index, cVIX computes all of its data in a decentralized manner and also defines a decentralized protocol and governance for managing the index calculation and trading aspects.
WC
I’m just a dumb words kinda guy, but this sounds VERY math based. Dumb it down for me and explain how you even caculate a weighted index that actually tracks market volatility with any sort of precision?
NH
The cVIX index is calculated from exchange-traded 30-days option prices. The index is calculated hourly. The algorithm collects data with 10-minutes frequency and calculates the average value for the last hour to avoid market manipulations. The combined cVIX index is a weighted sum of cVIX indices calculated for several cryptocurrencies (for example BTC and ETH), where weights are market caps divided by the sum of the market caps for these currencies.
The index itself is composed using a decentralized network of Chainlink oracles. To ensure decentralization and transparency, we use Chainlink architecture with multiple oracles to retrieve the required data and calculate into the formulated cVIX using external adapters. The calculated results from each Oracle are aggregated, verified and passed to the blockchain node.
WC
This all sounds really good, but how do you even know the math checks out? Do you have any modelling or proof that this will actually work in practice?
SBG
Yes, we have been testing the math and have checked historically real world events vs the cVIX index outcome.
Check this out, the below chart represents the Bitcoin price chart for 2020 with two visible market events:
- The COVID-19 crisis (spring 2020)
- The Defi-tokens price crash at the beginning of September 2020
BITCOIN PRICE:
Now let’s examine the cVIX chart representing both of these events:
When reading the cVIX chart, remember that “Market goes down, cVIX goes up”.
Obviously, the above chart shows that there is a strong inverse correlation between cVIX and the BTC prices.
The following is a 14-day chart of the cVIX index (ranged between 10–200), as of October 4th, 2020. This demonstrates the correlation the index has with macroeconomic events that affected the markets, such as the drop in global stock exchanges from September 21st and the events surrounding the Bitmex lawsuits and Trump Coronavirus news on October 1st. The spikes in the graph represent times where the cVIX index has spiked, impling more volatility and fear in the market.
Isn’t that amazing?
WC
I’d love to know, how do you effectively convert that math over to the platform and actually allow a user to trade using that data?
NH
As mentioned above, cVIX index calculation is performed by the decentralized network of Chainlink oracles. In order to ensure decentralization and transparency, we use Chainlink architecture with multiple oracles to retrieve the required data and calculate into the formulated CVIX using external adapters. The calculated results from each Oracle are aggregated, verified and passed to the blockchain node in Ethereum to be made available to both the requesting smart contract and as a service for the latest available figure via view smart contract calls.
The diagram below shows how this process works in a visual manner.
The combined CVIX index is a weighted sum of CVIX indices calculated for several cryptocurrencies (for example BTC and ETH), where weights are market caps divided by the cum of the market caps for these currencies.
The math around the index is calculated using an external adapter to a Chainlink oracle which aggregates all the data. The trades can be made by the user as either a trader (buyer) of CVIX position or as a liquidity provider for other traders.
WC
What’s the technical architecture you’ve created that allows you to not only create this index itself, but to effectively query the various price sources you need to be able to do so?
NH
So as mentioned in the previous answer, the math aspects are calculated by an external adapter to a Chainlink node and oracle. An external adapter is implemented as a Docker container confining the calculating script and a database. Each oracle with its Chainlink node has to run its own external adapter to calculate the index independently. This implementation allows anyone to either use the index calculated through the blockchain node or even calculate it on their own using the adaptor code.
WC
So in the initial version of the cVIX, where will these crypto price feeds be pulled from?
I’d assume that if you’re using limited sources, this could lead to a situation in which a price feed could be manipulated, gamed or simply quoted incorrectly and rekt the whole cVIX index?
NH
The external adapters (connected to Chainlink oracles) pull data from major exchanges (e.g: Deribit), which can include more sources once the governance aspects of our platform are fully activated.
Regarding the price manipulation, any price can obviously be manipulated if an attacker has enough resources and money.
To be able to manipulate cVIX prices you have to shift option prices at all major exchanges for more than an hour through the whole option chain, which makes such a manipulation very costly and hardly possible.
WC
What scope is there for adding in additional price feeds and indexes into the cVIX as the platform matures?
NH
As part of the second stage of the platform development, we plan to introduce inverse $CVIX tokens, allowing traders to open positions equivalent to short selling of CVIX.
In addition, cVIX operates a permissionless and open-source protocol so any user can be a part of the development of the network. cVIX includes a decentralized governance component, where holders of the $CVIX token can vote on matters such as the tradable assets, leverage used, deposit amounts, platform fees and most importantly which data source to add or include in the index.
By participating in the platform, by either trading on the platform or taking part in the governance of the platform, users of the system will earn $CVIX tokens which will allow them to improve the cVIX protocol and significantly influence the development of every aspect of the platform.
WC
After the data passes through and verified by the Chinalink nodes, it then passes onto a “Blockchain node”.
What are these blockchain nodes, who runs them, and again, how decentralised is this part of the ecosystem?
NH
Chainlink aggregator is an Ethereum based smart contract, so it is executed and managed on the Ethereum blockchain. It is built in such a way to filter out extreme results from potential rogue elements.
While we will keep interoperability with Ethereum and other chains, we expect that the superior performance of the Trustchain will demonstrate much lower usage fees and far greater speed.
WC
Before we get into how to trade using the cVIX, what assets can you actually trade with on the cVIX?
SBG
We are launching the platform with immediate support to ETH and USDT.
We believe these two assets would satisfy the basic need for users of the platform in the initial stages of the project and they also give us the ability to offer incentivised liquidity pools on Uniswap.
$CVIX holders can then vote on what other ERC20 based assets they would like added to the platform once the governance stage of the platform is active.
WC
Ok, so like the “real world” VIX scenario you have me before, let’s do the same for the cVIX…
Assuming the platform is up and running and everything is working correctly, describe to me how a trader would take either a long or short position on the cVIX to either hedge against their other crypto positions, or to simply profit on crypto market volatility?
SBG
There are a multitude trading strategies using volatility index. The following describes the three most common strategies for trading the volatility index:
- “Black Swan” — Hedging Strategy
If a trader expects that some large scale shock can affect the whole market, they can buy cVIX and if the market downturn really happens, the trader can make substantial gains from the trade.
For example, if the trader entered the market on some of the first days of February 2020 when the cVIX level was at 50, they could have made 260% profit closing the position when the cVIX level was at 180.
2. Overheated Market — Hedging Strategy
Unlike the previous trading strategy, this is a much more common situation for all financial markets. Let’s look at the last known one, at the beginning of September. The event is easily distinguishable on the Bitcoin price chart above, and even more so if we examine the the Ethereum chart:
The explanation for this market behavior is the overbought state of the market into the “DeFi” tokens, a very promising and quickly developing market segment, but no investment market can be stable being overbought.
As a result, when the stock market plunged approximately 5%, cryptocurrency markets lost much more and the DeFi components, based on Ethereum suffered the most significant drawdown.
The possible strategy of using cVIX for this situation is to buy volatility entering the rising market. If a trader starts buying into cVIX when it was at 50, entering the market on the last day of August, together with Ethereum or other tokens, then the gain in cVIX would have compensated most of his losses in Ethereum all through September.
3. Back Slope — Speculative Strategy
As demonstrated in the previous examples, after a sharp surge the cVIX usually goes down to its average levels. If a trader sells the cVIX at such a slope (like we see in the third chart), the trader can make profit once the index is going down. As all speculative trades, this strategy is more sophisticated and requires more analysis, but on average it can be more profitable than the other examples described above.
The following are two detailed trading examples:
Trading Example 1:
Trader 1 (Alice) enters a position in the cVIX platform and deposits 4 ETH as she anticipates increased market volatility and wants to hedge her current cryptocurrency portfolio, which contains several currencies such as: BTC, ETH, LINK etc. When Alice entered her position, the cVIX value was at 40 (out of 200), therefore each cVIX index point cost Alice 0.2 ETH (40/200).
After a few days, due to COVID-19 fears, the market became increasingly volatile and Alice’s cryptocurrency position sustained losses as a result. Due to the volatility, which in this case pushed the market down, the cVIX index went up to 80, leading to profits on Alice’s cVIX position. Alice now has ~7.98 ETH (due to a rise in the cVIX from 40 to 80, or 100% gain, while paying some fees).
Trading Example 2:
Trader 2 (Bob) is a volatility trader. He profits when the market is volatile and loses during times of market stagnation. Bob is also a liquidity provider on Uniswap, but wishes to diversify his liquidity provisions and to avoid an impermanent loss. Bob deposits 60 ETH into cVIX’s collateral pool (LP) in order to diversify, as he believes that the cVIX LP is more profitable due to the fact that generally speaking, a fear index always returns to its mean value when the market settles and he sees the current value (80) as too high and wishes to short it.
WC
As far as I’m aware, there’s a couple of existing volatility indexes already in play in the crypto space, the two that come to mind are LedgerX + T3 and BVOL.
Based on the scenarios you’ve just described to me, how does trading on the cVIX differ from these two and why would a user use cVIX over those two existing options?
SBG
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. The BVOL token also includes a 0.03%/day management fee, so the token actually devalues the longer you hold it.
As opposed to the above indexes, cVIX 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 cVIX index formula calculation as an additional data source. Since cVIX 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 cVIX implementation and protocol is fully decentralized and controlled by $CVIX 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.
We have composed a comparison table to summarize all these points:
WC
So from what I can see here in this comparison table, the two main value prospects would be the decentralisation component and the fee sharing component…Am I missing anything?
NH
Yes, 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.
In addition, As opposed to the above indexes, cVIX is built to work well with all new and upcoming volatility indexes. Once any of the competitors (such as: FTX BVOL or LedgerX index) gains enough volume, it can be added to cVIX index formula calculation as an additional data source. Since cVIX 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 cVIX implementation and protocol is fully decentralized and controlled by $CVIX 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.
WC
As with anything DeFi these days, there seems to be a raft of various decentralised derivative products popping up on the scene.
Are these types of products a threat to the cVIX or are they also something that could be integrated into cVIX along the way as they and also cVIX develops and matures?
NH
cVIX’s purpose is to track the expected volatility in crypto markets. Any successful defi options platform, once gaining enough open interest, could be used to gauge the expected volatility. As such, cVIX would welcome and benefit from future success of all DeFi derivative platforms (including existing ones such as Opyn, Auctus, HEGIC).
WC
When we speak on integrating various feeds into the cVIX, is this something that affects the entire index itself, or will you potentially end up with different cVIX indexes for different use cases?
NH
Actually, it can be both. At the current phase we are looking to improve the current index which will affect the entire index but in case specific use cases seem reasonable to the cVIX governance they can be added as well.
WC
Ok, so we’ve covered how traders can use the cVIX platform, but explain to me the role that Liquidity Providers play in the network….Is this a similar role to say, a Uniswap Liquidity Provider?
SBG
Liquidity providers on cVIX play a much bigger role compared to their role when they simply provide liquidity to swap platforms like Uniswap or Balancer.
In fact, liquidity providers on cVIX play the role of the counterpart for every trade made on the platform. So, if a trader has bought a LONG or SHORT on cVIX and lost that trade, the liquidity providers are the ones to recoup the lost trade, and vice versa.
In other words, if a trader bought insurance against volatility or against stagnation, the liquidity providers play the role of the insurance company. This is a great position to be in as it is much more lucrative than just providing liquidity for a small fee and being at risk of impermanent loss.
With cVIX, liquidity providers make excellent fees AND see their liquidity pool grow over time making their projected APY far greater than what it is on other platforms that just share trading fees for liquidity provisioning.
WC
When will the cVIX platform actually be live and tradable?
SBG
We are building the platform relentlessly and plan on launching it in early December.
However, the $CVIX token distribution will start tomorrow and all the tokens will be locked until we launch.
CVIX TOKEN UTILITY
WC
So we’ll get into the token distribution and metrics stuff in a second, but before we do, how about a TLDR on what the token actually does?
SBG
cVIX operates a permissionless and open-source protocol so any user can be a part of the development of the network.
cVIX includes a decentralized governance component, where holders of $CVIX tokens can vote on matters such as the tradable assets, leverage used, deposit amounts, platform fees and more.
By participating in the platform, by either trading on the platform or taking part in the governance of the platform, $CVIX holders will also share fees from the cVIX platform.
Here’s a TLDR summary of the governance rights $CVIX token holders will have on the cVIX platform -
- Vote to change the leverage
- Vote to change the fees
- Vote to change D0 (opening position deposit size)
- Vote to change Dmin (liquidation position deposit minimum level)
- Vote on changes to the data source and aggregation protocol
- Vote on trading platform changes and enhancements
- Holders will share platform fees
WC
It’s probably best at this point for you to describe to me how fees and leverage actually works on the cVIX platform for context?
I can YOLO 100x my entire stack on cVIX?
NH
The cVIX platform will collect fees from users joining and leaving as well as for buyers over time. These funds will be collected into different pools of the platform to be distributed between the users, governance token holders staked in the platform and for internal calls within the platform in the Ethereum blockchain.
At the first phase, leverage positions are not supported but the platform is built with leverage support functionality and this will be enabled in the future once the platform is stable. Leverage amounts will of course be decided via governance vote!
WC
You mentioned before that the cVIX is currently calculated by “the weighted sum of cVIX indices for several cryptocurrencies”.
By voting in a new currency to the platform, does this also affect the index itself, or does it just give traders and new underlying assets to trade the cVIX with?
NH
Voting can be on the index itself — meaning adding a new weighted token to the index calculation. Or it can be for adding support for a new token to be supported on the trading platform — in this case the new currency will be used to deposit funds and buying cVIX positions.
WC
So how can token holders actually submit proposals to the platform in order to change or influence one of the governance aspects you’ve mentioned above?
NH
We have added the CVIX governance token, which will gradually be allocated according to a public pre-defined plan between users of the platform (both liquidity providers and traders), other liquidity providers and Coti users as well as long term vested for the development team \ needs.
The idea is to use current solutions such as Snapshot.page along with our governance token to make everything transparent and accessible.
CVIX TOKEN DISTRIBUTION & SUPPLY
WC
One of the more interesting aspects of this project is how you’ve decided to distribute tokens…Instead of a raise you’re doing a “fair launch” offering that includes $COTI token holders…
Can you explain to me why you’ve chosen to do it in this manner instead of doing a more traditional fundraise and token distribution?
SBG
Because it’s fair and cVIX is a fair launch product. Distribution of the governance tokens ($CVIX) will run over a period of three years, with no pre-mine, no fundraising and no allocation for VCs or Whales.
We have raised funds in COTI and are doing well, why would we raise more funds when and give centralized control to privileged investors while we can complete our mission while keeping it fair? It’s the wrong thing to do.
On cVIX, everyone starts equally and users of the platform will govern it and enjoy its fees.
We believe that in order for cVIX to be successful and widely adopted, as it should, the only way to do it is to align everyone’s interest and give users the opportunity to shape the future of the protocol, while also enjoying its success.
WC
Before I get into further questions on this, how about a data dump of the token metrics and distribution schedule?
SBG
The $CVIX tokens three year allocation distribution:
- 10% $COTI native coin holders (3.2M tokens)
- 15% incentives for liquidity providers to migrate to cVIX (4.8M tokens)
- COTI — ETH Uniswap liquidity pool — 1.6M tokens
- Other Uniswap liquidity pools combined- 3.2M tokens
Both of the above allocations are — locked until the platform is launched and achieves a set milestone
- 15% development fund — distributed over 3 years (4.8M tokens)
- 60% users of the cVIX platform for their usage and liquidity — distributed over 3 years (19.2M tokens)
- Platform liquidity providers — 12.8M tokens
- Platform usage- 6.4M tokens
The $CVIX total supply is minted gradually over three years and is capped to 32M $CVIX tokens, with no option to mint more.
- Total distribution to cVIX platform users:
$CVIX Distribution during the first 4 months
$CVIX Distribution during 3 years
WC
I usually ask in this part of an AMA, what the token price is and what the token market cap will be, but I don’t see any of that in the information you’ve provided?
SBG
That’s because cVIX is a fair launch product and we’re giving all $CVIX tokens to the community for no cost.
We didn’t assign any value to them as we’re going to let the market decide what governing the protocol is worth.
WC
Do you think it’s “fair” that this distribution process mostly benefits $COTI token holders as opposed to other crypto token holders or users?
SBG
COTI holders will ultimately have about 25% of the distribution while the platform users will control 60% of it.
We believe it’s only fair that COTI holders will have premiere access to $CVIX as cVIX was developed entirely by the COTI team and on it’s own expense. Anything else would actually be less fair.
That said, COTI is traded on 12 exchanges and anyone that wants to have $COTI in order to participate and get free $CVIX can do so and is welcomed to do so!
WC
I personally think “fair launch” is somewhat of a misnomer, but this definitely sounds fairer than doing some sort of scammy raise like some projects have of late…HGET (among others), I’m calling you out on this one!
But that aside, explain to me how the distribution process will actually work in practice and users will be able to claim $CIVX tokens throughout the claims process?
SBG
The distribution schedule for each allocation is as follows -
- Distribution to native $COTI holders
Starting tomorrow, October 14th at 6am UTC and ending once the cVIX platform is launched, we’ll be distributing 10% (3.2M $CVIX tokens) of the $CVIX supply
To make sure that distribution is fair and that $CVIX is well distributed, the amount of $COTI that can participate in the claim process was limited to 500K $COTI coins.
Distribution of $CVIX to $COTI holders is not a one time event. The first distribution will be the biggest one and then the following distribution will be 10% less and so on, until 3.2M $CVIX tokens are distributed when the platform is launched, so stay tuned for future distribution events!
Opportunities to claim more $CVIX will be limited in time and announced a few hours before they take place, to avoid market manipulation and to keep distribution as fair as possible.
- Distribution to liquidity providers — Starting on Friday, October 16th 2020
In order to encourage liquidity providers to migrate their liquidity to cVIX, LP’s will be incentivized with $CVIX tokens.
In order to encourage potential liquidity providers to review cVIX’s offering, we’ll be offering $CVIX to liquidity providers that stake their Uniswap LP token with it. Once they are ready to migrate completely to cVIX, they will be able to do so with a click of a button and get even more $CVIX, on top of the other benefits that liquidity providers get.
The first liquidity pool that will be incentivized is the COTI ERC20 / ETH pool on Uniswap — it will begin soon after the first batch of $CVIX is distributed to $COTI holders. The amounts each liquidity provider is eligible to will be set according to random snapshots of the pool on Uniswap.
The next liquidity pools to be incentivized will be decided by the cVIX decentralized governance. A supporting decentralized platform will be created by COTI to support this process for the benefit of the cVIX community.
A total of 15% (4.8M) $CVIX tokens were allocated for liquidity pools incentives, distribution will start after the first liquidity pool is launched and will end when all 4.8M $CVIX tokens are distributed.
In order to avoid the short lived hype cycles that come with distribution models that start with high amounts and decrease rapidly, it was decided to reverse the process. The first distribution will be the smallest one, the next one bigger and so on. That way, momentum and interest are kept as the overall liquidity locked on the platform grows.
**It’s important to note that all distributions of $CVIX tokens that will occur before the platform is launched will be locked until the platform is operational and USD $0.5M value is locked on the platform. We believe that tokens that can be traded should already have utility when in circulation.
- Distribution to cVIX platform users — Liquidity and Usage — Starting at the cVIX platform launch and ending three years later
Ultimately, users of the cVIX platform will completely govern it, as should be the case with any decentralised governance platform. Accordingly, 60% of all $CVIX tokens will be distributed to platform users, for providing liquidity to the LP’s and for making trades on the platform itself.
The distribution of the Liquidity and Usage allocation will be presented closer to the platform launch. That said, such allocations can and will be subject to changes as decided by the cVIX decentralized governance, controlled by $CVIX holders.
WC
So later this week, $COTI ERC20 token holders will be able to add these to the COTI/ETH Uniswap LP and earn $CVIX tokens as a result right?
SBG
Exactly, this Friday, October 16th, we begin incentivizing users that post liquidity to the COTI ERC20/ETH pool on Uniswap and they will get their tokens the same way and at the same time like COTI Native coin holders get theirs.
It balances the interest between COTI holders that have a Native coin and those who hold the ERC20 version.
Here’s a guide on how to do that also —
WC
I see in the info you’ve provided you have a token distribution tranche for “Other Uniswap liquidity pools combined”.
What does “other” mean in this context?
SBG
The next liquidity pools to be incentivized will be decided by the cVIX decentralized governance. A supporting decentralized platform will be created by COTI to support this process for the benefit of the cVIX community.
It means that the community can decide that they want to see LINK or UNI next, and once they’ve been voted on and added in, those Uniswap LP’s will also be incentivized with $CVIX tokens.
WC
In a similar vein, you also have a token distribution tranche for platform liquidity providers.
I assume this means users who directly supply tokens to the cVIX platform?
NIR
Users can start by just staking their pool tokens and earn $CVIX just to get them involved in the protocol and governance but to be eligible for a larger cap of the distribution they can supply liquidity to the platform.
WC
There’s also a token distribution tranche for usage of the cVIX platform.
Does that mean I can earn cVIX tokens while I lose money on my trades? How much usage do I have to have before I earn tokens? I assume it’s based on volume of trades?
NIR
The exact numbers and criteria are not yet defined but yes you can earn back $CVIX tokens by using the platform or by entering into trades.
WC
So say I’ve qualified and made a claim for $CIVX tokens…How will I know my claim has been successful and how many tokens I’ve claimed?
SBG
Until $CVIX tokens are unlocked, we’ll be updating this webpage (https://cvix.finance/#statistics) on our website (cvix.finance) with all distribution related info.
You will be able to enter your ETH address to see the amount of $CVIX you are due to receive once $CVIX tokens are unlocked and distributed to ETH addresses, so you can keep track of your earnings.
CLOSING THOUGHTS
WC
Wow, that is A LOT to take in!
I believe you’re doing a few more AMA’s today right?
SBG
Yes, two more today and three more tomorrow, we’re getting more requests as we speak actually.
And yes, there’s a lot to take in, but the concept is dead simple and useful:
You now have a Market Fear Index for crypto you can trade on.
Of course, you should join our new cVIX group that we have just created —
Can I share the media coverage?
WC
Please!
SBG
Just to name a few, and we have been getting great feedback!
WC
Thank you for coming so prepared to this AMA, I can see you’ve put some real time and thought into this one
I need a moment to let this all sink in and write the rest of this up, and I’m sure you’d like a little break before the next AMA!
SBG
One should always be prepared for a Wolf AMA, thank you all!
NH
Thanks!
cVIX Resources
Website: https://cvix.finance/
Telegram: https://t.me/cvixofficial
Twitter: https://twitter.com/cVIXofficial
Medium: https://medium.com/@cvix
Wolf Crypto Resources
Public Group: https://t.me/WolfCryptoPub
News Channel: https://t.me/WolfCryptoAnnounce
Twitter: https://twitter.com/WolfCryptoGroup
