A brief analysis of the cryptocurrency volatility index: How to use "market panic" to gain profits?

Written by: korpi

Compiled by: TechFlow

Price-wise, it’s been a pretty boring period with BTC moving in a tight price range… Is this the calm before the storm?

The Crypto Volatility Index (CVI) is almost at an all-time low.

If you predict that there will be some volatility in the future, then you can make money with CVI. And you don’t have to predict whether the price will go up or down.

What is the Crypto Volatility Index?

CVI is the VIX index for cryptocurrencies - an index that tracks volatility. It was created by the COTI team COTI Network in collaboration with Professor Dan Galai, the creator of the original VIX. The aim is to build a "market fear index" for cryptocurrencies.

The CVI ranges from 0 to 200: 0-85 ≈ low volatility 85-105 ≈ medium volatility 105-200 ≈ high volatility.

So, how do you make money with CVI?

There are two ways:

1. Betting on volatility,

2. Profit from other people’s bets.

If you believe volatility is coming, the CVI will increase regardless of the direction of price.

You can acquire CVOL tokens which are pegged to the CVI index. Either through their minting site or buy them on SushiSwap if that’s cheaper there.

But be aware of funding fees.

CVOL tokens have a built-in funding fee: the lower the CVI, the higher the fee. It is implemented in the form of a daily negative rebase - the number of CVOL tokens you have is reduced.

Conclusion: Buy CVOL tokens only if you expect them to fluctuate upwards soon.

If you’d rather be the casino, deposit your USDC into the Theta Vault.

Theta Vault is like $GLP to $GMX — depositors gain and lose money in the opposite direction of traders. The current annual interest rate is 36%, but you can also lose money when CVI explodes.

Unlike CVOL tokens, Theta Vault is a long-term investment. Traders may happen to profit at the expense of Theta depositors. But as $GLP has proven, in the long run, the house always wins.

Final Thoughts:

CVI is an interesting new DeFi primitive. Finally some innovation in the torrent of boring forks. The team has shown their great skills and the roadmap is still full of innovation. Definitely worth watching.