3 minutes to understand volatility index protocol volmex

volmex.finance v1 to go live on the ethereum mainnet in June this year

Previously, volmex.finance launched the Ether Volatility Index (ETHV) and Bitcoin Volatility Index (BTCV), which are designed to track the 30-day implied volatility around in-the-money options for Ether and Bitcoin, respectively. Today, we’ll share more details about volmex.finance v1, a protocol built on Ether that facilitates a decentralized way to express views on crypto market volatility.

volmex.finance v1 introduces the issuance and redemption of volatility tokens, such as the Ether Volatility Index Token (ETHV) and the Ether Inverse Volatility Index Token (iETHV), collateralized fungible ERC20 tokens designed to track the implied or realized volatility of any crypto asset.

Protocol Overview
Issuance of volatility tokens by calling the collaterize function. Redemption of volatility tokens by calling the theredeem function.

Types of collateral supported at launch: DAI and USDC.

Number of collateral required to mint 1 ETHV & 1 iETHV: 200 units of stablecoin.

Minimum deposit: 20 units of stablecoin (e.g., 20 DAI to mint 0.1 ETHV & 0.1 iETHV).

No token expiration.

No liquidation.

No prophecy machines.

0.1% minting fee and 0.3% redemption fee, with parameters adjustable by Volmex core multi-signature.

A global settlement mechanism (settle function) that enables Volmex core multi-signatures to set settlement prices for volatile tokens, a mechanism inspired by the global settlement function of MakerDAO. If implemented theoretically, long volatility can be redeemed with settlementPrice and short volatility can be redeemed with market cap (e.g. 200) minus settlement price.

How does the protocol work?
The volmex.finance v1 protocol has two key groups of participants: 1) liquidity providers (LPs) and 2) traders

Liquidity Providers (LPs)
Mint

The liquidity provider (LP) deposits collateral (e.g. DAI, USDC, etc.) and mint volatility tokens (e.g. ETHV and iETHV) by calling the collateralize function.

The liquidity provider (LP) minted volatility index tokens and reverse volatility index tokens on a pro-rata basis. Once the LP receives the minted Volatility Index Token / Inverse Volatility Index Token pair (e.g. ETHV / iETHV), the LP can provide liquidity to the Uniswap / AMM pool to earn transaction fees or sell one of the tokens in the marketplace to make a targeted bet on expected market volatility.

The number of volatility tokens received is based on the simple formula (where N = stable coins deposited into the protocol).

Number of volatility tokens received (e.g. ETHV) = N/200

Number of reverse volatility tokens received (e.g. iETHV) = N/200

In an example scenario, the liquidity provider (LP) deposits 200 Dai and receives 1 Ether Volatility Index token (ETHV) as well as 1 Ether Reverse Volatility Index token (iETHV).

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A given volatility index token (e.g. ETHV) will track the corresponding off-chain Volmex volatility index (e.g. Ether Volatility Index @~120%; ETHV is worth ~$120).

Reverse Volatility Index tokens (e.g. iETHV) will track the market cap (e.g. $200) minus the long token (e.g. Ether Volatility Index @ ~120%; iETHV is worth ~$80).

The Volmex Volatility Index source code and detailed methodology will be available when it goes live on its main website, and Volatility Index data will be available in the Volmex web application.

Redeem (Redemptions)

Liquidity providers (LPs) can redeem an equal percentage of stablecoin collateral with volatility tokens by calling the redeem function.

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For example, 1 ETHV token and 1 iETHV token can be redeemed for 200 DAI or USDC.

Trader (Trader)

Traders buy volatility tokens from spot exchanges such as Uniswap.

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Costs
Minting Fees
There is a minting fee for minting volatility tokens, these fees are paid to the Volmex Core Multi Wallet address, the current fee rate is set at 0.10% and it can be updated by the Volmex Core Multi Signature.

Redemption Fees
Similarly, redemptions of Volatility tokens are subject to a redemption fee, currently set at 0.30%, which can be updated by the Volmex Core Multi-Signature.

About licensing and auditing
Inspired by Uniswap v3, volmex.finance v1 will be released under the Business Source License ( BSL) copyright protection, which means that its codebase is protected for two years.

In addition, CertiK and Coinspect Security have conducted an audit of the v1 version of the protocol, and the full report is linked below.

Full audit from CertiK

Full audit from Coinspect

About the go-live plan
It is reported that volmex.finance v1 will go live on the main ethereum network in June this year, and will later expand to sidechains such as Polygon and Optimism or layer 2 networks.

Initially, users will be able to mint, redeem and trade volatility tokens for two major crypto assets, Bitcoin (BTC) and Ether (ETH). And more index products and collateral types will follow.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/3-minutes-to-understand-volatility-index-protocol-volmex/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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