DeFi Alpha Call #32

This week, Cole from Volmex Finance joined the call to walk us through their crypto volatility indices.

The link to the recording and summary can be found below.

00:00 – Market Overview

02:59 – Cole from Volmex joins

21:25 – ETH

22:28 – Bitcoin

26:23 – NFT Roundup

40:09 – Starter Tutorial: Earn Up to 20.8% YTM with a Shapeshift Bond on Arbor Finance

43:38 – Degen Tutorial: Swap Multiple Tokens With Zero Slippage Using Bebop

• Volmex is a protocol that allows users to speculate on cryptocurrency volatility through the use of its Volmex Implied Volatility indices (BVIV and EVIV).

• The protocol offers various products related to these indices, including volatility tokens (V1 and V2), which can be used for hedging and expressing views on the market.

• The data for the indices is gathered from multiple centralized exchanges, though the company hopes to eventually be able to use decentralized finance (DeFi) options data in the future.

• Users of the protocol include traders and liquidity providers, who can use it for hedging, participating in swaps, and as a benchmark for market volatility.

• The protocol’s tradable tokens track the VIX index accurately and can be used to express a view or hedge against volatility.

yyctrader: Welcome. We are glad to have you here. To start, let’s talk about Volmex. For those who may not know, Cole is the founder of Volmex, a protocol that allows users to speculate on cryptocurrency volatility, similar to how the VIX index works for the stock market. Can you explain what Volmex does and how DeFi users can use it to profit or hedge their investments?

Cole: At Volmex, we create the Volmex Implied Volatility indices (BVIV and EVIV) and publish them on our website and on the websites of some of our partners as a way to measure volatility in the cryptocurrency market. We also offer several products related to these indices, including volatility tokens (V1 and V2), which can be used to express a view or hedge a portfolio. Overall, our goal is to provide reliable volatility indices and tools for hedging and speculating in the market.

yyctrader: It says on this chart site that the indices are derived from real-time crypto options pricing. Which exchanges do you guys pull your prices from?

Cole: The crypto options market is still developing and there is currently not a DeFi order book options platform that provides reliable quotes with enough liquidity to accurately price an index. Therefore, we gather data from multiple centralized exchanges such as Deribit, OKX, and soon Bybit to create a global order book. We then use this global order book to derive our index. Using multiple data sources allows us to have an advantage over using only one source. In the future, we hope to be able to do this solely based on DeFi options data, but that is currently not possible due to the current state of the market.

yyctrader: Oh, yeah, totally agree with you there, because options pricing in DeFi is insane compared to centralized exchanges. It’s so expensive to hedge or speculate on chain. It doesn’t make sense at all, right?

Cole: There are many DeFi option vaults available, but they are not as flexible and do not provide the necessary quotes for us to accurately calculate our volatility index. However, we are still excited about the developments in the DeFi option space. At this time, there is not enough options liquidity to accurately price our index. If you would like more information on how we have structured our index, please visit our website, volmex.finance, and click the methodology link to view a technical paper that explains our approach.

yyctrader: What are the best ways to use the protocol? What strategies do most of your users use and, how can it help a regular DeFi investor protect their portfolios and bet on long-tail events?

Cole: There are two main groups of users for the Volmex protocol: traders and liquidity providers (LPs). Traders can use the app to purchase tokens like EVIV and BVIV for various purposes, such as hedging their portfolios against volatility. LPs, on the other hand, earn trading fees by providing liquidity to the protocol. They can also participate in swaps between different tokens and stablecoins. Additionally, some users may simply use Volmex as a benchmark for market volatility.

Cole: You can think of it like a fear index that it’s tracking expected volatility in the market and how the market’s pricing that. That’s a great way to look at it.

Yyctrader: Do the tradable tokens used to track the volatility index, do so accurately? In traditional markets, VIX isn’t directly tradable and other financial instruments like exchange-traded notes and derivatives do not always closely follow the underlying index. Is this also the case with the tradable token, or is it more precise in its tracking?

Cole:In V2, we have created a new architecture that allows for the trading of volatility tokens at their current reference or oracle price. This is made possible through the use of an innovative AMM (automated market maker). In V2, trades can be done at the current volatility index level, with liquidity providers serving as counterparties. In the coming months, we will also be releasing other products that use different mechanisms to maintain reference pegs. Overall, Volmex Finance V2 (which is currently live on Polygon) uses oracles and liquidity providers to enable traders to do swaps at the current oracle price.

yyctrader: What’s the difference between EVIV and IEVIV?

Cole: EVIV is a long token that trades with the index. IEVIV is a short token that is inversely related to EVIV. These two tokens always sum to 400 and trade on an exchange. If EVIV is at 100, IEVIV should be at 300. In the future, there will be different combinations of these tokens with added functionality. The EVIV token can be thought of as a spot token for the EVIV index, while future products may introduce additional features. We have a suite of exciting products coming that will provide value to traders.

yyctrader: Users can purchase either the EVIV token or its inverse if they expect market’s to remain calm. Alternatively, they can mint both tokens using stablecoins and provide liquidity. What’s the current yield for liquidity providers?

Cole: The LP fees collected on the portfolio page may vary depending on the deposited and provisioned LP. The messaging about these fees could be improved to make it clearer. The trading fees, which have been varying, may also impact the LP fees.

yyctrader: It would be great to see just an APY indicative of the past seven days or the past 30 days.

Cole: We can definitely do that.

yyctrader: What has the response from the community been like on the platform? Have larger, more sophisticated investors been using it as a hedge, or are smaller traders using it for gambling purposes like in the stock market?

Cole: Our investors and partners include both institutional and retail users. We are currently on Polygon and will soon be on Arbitrum as well. In the last couple of weeks, we have had over 6,000 addresses interact with our new version, and over the past year and a few months, we have had around 30,000 addresses on the v1 version. We have seen interest from both institutional and retail users, with an even split between those interested in hedging and speculation. However, we expect to see more users using our products for risk management and hedging as the market evolves and there is a greater focus on risk management. In addition to those speculating and hedging, we have also seen users using our platform as a benchmark.

yyctrader: Do you guys have a token yet? And if not, are there plans for any?

Cole: We currently have four product tokens: BVIV, EVIV, IEVIV, and IBVIV. However, we do not have a plan for a governance token at this time. While we are open to considering it in the future, we do not have an official plan in place. Our primary focus is on building the best product and doing what is best for our users.

We don’t have plans for a token or an airdrop, but we definitely will be committed to doing what’s best for the community and our users.

Cole – Volmex

yyctrader: Have you guys raised any funding? How are you guys funding the project and how long is your runway? Are you guys well-capitalized?

Cole: We are. We have partnerships with KBI Ventures, DWF Labs, CMS Holdings, IOS G Ventures, and others.

Galaca: Do you have any plans on adding another token to track besides ETH and BTC? Or if not, what type of things are you looking for? If you wanted to add in another like L1s in there?

Cole: We would like to offer Volmex implied volatility indices, but we currently do not have access to robust options data. This is because the options exchanges that we typically use, such as Derbid, have delisted coins like Solana due to issues with tick sizing. As a result, we do not have enough options data for other top coins like Bitcoin and Ethereum. We hope to offer these indices in the future, but for now, it is not feasible due to the current state of the market. In the meantime, we will continue to explore other opportunities using the data that we do have available.

yyctrader: We have another question in the chat asking if Alameda and Three Arrows invested in Volmex in the past, and if yes, how did their bankruptcy affect you, if at all?

Cole: Volmex received investment from Alameda and Three Arrows in its first round of funding. We don’t have any financial or business relationships with these entities beyond them being investors. Volmex is not affected by any current or potential issues involving Alameda or Three Arrows.

It was a really a pleasure to come on today, the Defi Alpha call. You guys can head to our website, volmex.finance, and keep an eye out for new products, announcements, and partnerships, and join the community. It was great to be here and tell you guys more. Thanks for having us.

Market Overview

The latest Fed statement was decidedly hawkish. The market had expected rates to top out at around 4.5-4.6% in 2023, but the latest projections show that rates will cross 5% and stay there for most of 2023. This is concerning to markets because high, persistent interest rates can cause financial stress for heavily leveraged companies and lead to a cycle of bankruptcies and layoffs.

Additionally, emerging markets around the world have borrowed heavily at low-interest rates and now face the challenge of refinancing this debt as the dollar strengthens and interest rates rise.

Commodity prices are already returning to levels seen in November 2021, despite the inflationary pressures caused by events in Ukraine. .

ETH

The current market situation is uncertain and risky. We have repeatedly failed to break through the downtrend line from the all-time high. The 200-day moving average, represented by the yellow line, is usually used to determine whether the market is in a bull or bear phase from a technical perspective. It is currently at 1400, which is not far away.

Instead of trying to catch a falling knife, it may be safer to wait for the trendline to be surpassed and for a successful “backtest” to occur, for a trade towards the 200DMA.

Bitcoin

• The market looks terrible since the June crash and has struggled to gain momentum.

• Every time there is a rally, it ends up being derailed by negative news or a selloff.

• Currently in the lowest range since November 2020, before the bull run began

• 200-day average is currently just above 20,000 and falling as the market remains below it.

• First hurdle is to get back above 18,500 and then progress level by level.

• Currently, not an attractive entry point since we’re in the middle of the range, but could be a good area to DCA for long-term holdings.

• Leveraged trading requires more precise entries and exits.

NFTs

Donald Trump’s NFTs boomed over the weekend and 85% of them were purchased using credit cards by non-crypto natives who may not have known how to claim and sell them. There was also controversy surrounding the admin wallet minting a large number of rare NFTs for itself.

Terraforms is a project that has been around for about two years. It has recently gained momentum. Wolf Game is also releasing a new version of their game.

The Beacon – they had these mint for these eggs that’ll hatch into pets or something like that. There were 4,000 of these that were sold and I think they were just a free claim or extremely cheap to mint, and they’ve really done well.

Lascaux Editions – The artist has been holding daily “burn events,” where previous versions of the NFT can be burned to obtain a new version. The final reveal of the collection will be on Christmas Day. The different versions of the NFT can be created by burning the original version and the next iteration of the collection.

Cockpunch – I’m not sure what the next catalyst for this is. It seems to be holding steady due to the artist’s reputation.

NFT Gift Exchange – Any verified collection from Open Sea can be used to give and receive wrapped gift NFTs, which can then be unwrapped. There is a limited time to do this.

ETH movie NFT collection – There’s been activity going on behind the scenes. The script is expected to be ready, hopefully in January. Free airdrops are delivered every couple of weeks. Looking forward to next year being a good one for ETH movie.

Tutorials

Earn Up to 20.8% YTM with a Shapeshift Bond on Arbor Finance – Arbor Finance is a platform that allows decentralized autonomous organizations (DAOs) to borrow stablecoins using their tokens as collateral. It allows DAOs to access credit by issuing bonds, which are fixed-income instruments representing loans made by investors to borrowers. Learn more

Swap Multiple Tokens With Zero Slippage Using Bebop – Bebop is a decentralized exchange (DEX) that launched in June and was incubated by the crypto trading firm Wintermute. It offers features that aim to improve the DeFi trading experience. Learn more