Previously, volmex.finance introduced the Ethereum Volatility Index (ETHV) and Bitcoin Volatility Index (BTCV), flagship Volmex indices which respectively aim to track the 30-day implied volatility of Ethereum and Bitcoin near the money options. Today, we share more details on volmex.finance v1, a protocol built on Ethereum that makes it easy to express a view on crypto market volatility in decentralized fashion.
volmex.finance v1 introduces issuance and redemption of volatility tokens (e.g. Ethereum Volatility Index Token (ETHV) and Inverse Ethereum Volatility Index Token (iETHV)), collateralized fungible ERC20 tokens which aim to track the implied or realized volatility of any crypto asset.
Protocol Overview
- Issue volatility tokens by calling the
collateralizefunction. Redeem volatility tokens by calling theredeemfunction. - Supported collateral types at launch: DAI
- Etherereum Volatility Index (ETHV / iETHV) market cap: 250
- Bitcoin Volatility Index (BTCV / iBTCV) market cap: 250
- Minimum deposit: 25 stablecoins (e.g. 25 DAI to mint 0.0999 ETHV & 0.0999 iETHV)
- No token expirations
- No liquidations
- No oracles
- 0.1% minting fee & 0.3% redemption fee, parameters which are adjustable by the Volmex core multi-sig.
- Global settlement mechanism (
settlefunction) which enables the Volmex core multi-sig to set a settlement price for the volatility tokens. This mechanism is inspired by MakerDAO's global settlement feature and is designed to be a last resort. If theoretically excuted, the long volatility would be redeemable for thesettlementPriceand the short token for the cap less the settlement price.
How does the protocol work?
volmex.finance v1 protocol has two key groups of participants: 1) Liquidity Providers 2) Traders
Liquidity Providers
Mint
Liquidity providers deposit DAI (soon more collateral types!) and mint volatility tokens (e.g. ETHV & iETHV) by calling the collateralize function.
Liquidity providers mint proportional amounts of volatility index tokens and inverse volatility index tokens. Once a liquidity provider has received the minted volatility index token / inverse volatility index token pair (e.g. Ethereum Volatility Index Token - ETHV / Inverse Ethereum Volatility Index Token - iETHV), LPs can provide liquidity to Uniswap /AMM pools to earn trading fees or sell one of the legs / tokens on the market to take a directional bet on expected market volatility.
The amount of volatility tokens received is based on a handcoded cap when a volaitility market is initially deployed. The cap for both ETH and BTC volatility token markets is set to 250. Factoring in the 0.10% (10 basis point) mint fee:
250 DAI mints 0.999 ETHV and 0.999 iETHV
250 DAI mints 0.999 BTCV and 0.999 BTCV
In a simple example scenario, a liquidity provider approves and deposits 250 Dai from the Volmex web app. 249.75 DAI is deposited to the protocol. The liquidity provider receives 0.999 Ethereum Volatility Index Token and 0.999 Inverse Ethereum Volatility Index Token.
A given volatility index token (e.g. ETHV) references and aims to track a corresponding off-chain Volmex volatility index (e.g. Ethereum Volatility Index @ ~120%; ETHV worth ~$120).
The inverse volatility index token (e.g. iETHV) aims to tracks the cap (e.g. 250) less the long token (e.g. Ethereum Volatility Index @ ~120%; iETHV worth ~$130).
Volmex volatility index methodology will be available at mainnet launch. Volatility index data will also be available in the Volmex web app, as well as programmatically.
Redeem
Liquidity providers can always redeem equal amounts of volatility tokens for proportional stablecoin collateral by calling the redeem function.
For example, 1 ETHV token and 1 iETHV token can together be redeemed for 249.25 DAI (250 less the 0.30% redemption fee).
Traders
Traders purchase volatility tokens from spot exchanges, such as Uniswap.
Fees
Minting Fee
There is a minting fee for minting volatility tokens. The fee is paid to the Volmex core multi-sig. The minting fee is currently set to 0.10% and can be updated by the Volmex core multi-sig.
Redemption Fee
There is a redemption fee for redeeming volatility tokens. The fee is paid to the Volmex core multi-sig. The redemption fee is currently set to 0.30% and can be updated by the Volmex core multi-sig.
License
Inspired by Uniswap v3, we think the Volmex community should be the first to build an ecosystem around the volmex.finance v1 codebase. volmex.finance v1 will launch under the Business Source License 1.1.
Business Source License 1.1 is virtually a time-delayed GPL-2.0-or-later license. The license limits use of the v1 source code in a commercial or production setting for up to two years, at which point it will convert to a GPL license into perpetuity.
The Volmex Labs team can accelerate the change to GPL or grant exemptions to the license at any time by updating https://github.com/volmexfinance/volmex-core.
Audits and Bug Bounty
Security is of the utmost importance. Audits of the smart contract codebase by third-party security research firms:
The Volmex bug bounty program is designed to bolster the professional audits the code base has undergone. More detail on the public bug bounty can be found below.
volmexfinanceLaunch Plan
We are thrilled to share that volmex.finance v1 will be live on the Ethereum mainnet in June, and soon after Polygon, Optimism, and more. The volmex.finance v1 core smart contract repo is available below.
volmexfinanceA private testnet is currently in testing with partners. The volmex.finance v1 smart contracts will be deployed to the Ethereum testnets prior to mainnet launch.
Initially, users will be able to mint, redeem, and trade volatility for the two largest crypto assets, Bitcoin (BTC) and Ethereum (ETH). More indices and collateral types are coming soon!
Get Involved
If you are interested in integrating Volmex, please fill out this form. Additionally, you can reach out in the #integrations channel on Discord.
To stay updated with Volmex / join the conversion:
About volmex.finance
volmex.finance is a protocol for tokenized volatility built on Ethereum. Traders can leverage the protocol to express a view on the expected volatility of Bitcoin, Ethereum, and more. Volmex Labs, the builder of volmex.finance, is backed by leading crypto investment and trading firms including Alameda Research, Robot Ventures, CMS Holdings, Orthogonal Trading, IOSG Ventures, D64 Ventures, DeFi Technologies (NEO: DEFI), Fourth Revolution Capital, and Coral DeFi.