COTI has opted to use a Chainlink-based system as its oracle for the CVI index. As a way to expand trading and hedging opportunities in the crypto markets, COTI developed the Crypto Volatility Index (CVI). This index measures the rate of change in major tokens.
In a recent announcement, COTI disclosed that Chainlink will be used to both decentralize how the market data for the CVI is gathered, as well as how the data is distributed across the DeFi ecosystem.
As a trusted oracle platform, Chainlink will help the CVI to grow into a trusted source for crypto market volatility information, which can then be used to create derivatives contracts or be fed into other areas that can use the data.
COTI Created the First CVI
The CVI that COTI created is meant to be a “fear index” that measures the market’s view of how likely a large downturn is over the coming 30 days. The VIX has performed this function in the US equity markets for decades, and the CVI may become as popular in the crypto markets.
A volatility index is a basis for creating effective hedging derivatives, which is a tool that professional crypto investors have lacked up to this point. Instead of measuring a single crypto’s expected volatility, the CVI measures the major tokens, on a market-cap weighted basis.
By creating a broad hedging tool, the CVI will allow derivatives exchanges to open a new market in crypto volatility futures. DeFi volatility contracts can be created as well, and because Chainlink is a standard in the DeFi ecosystem, the CVI can easily interface with smart contracts.
A Solid Metric
COTI used Chainlink because it is able to aggregate numerous off-chain data sources and put them into an on-chain format. This means that the CVI can take data from just about anywhere, and package it into a form that is easy to use in the DeFi ecosystem.
The system uses Chainlink External Adapters, which creates smart contracts that are able to connect off-chain sources to Chainlink nodes. These contracts direct the data that the node gathers, via a list of specific tasks.
In short, this system will have access to the best data in the world and also be able to tap multiple sources so that the CVI represents an accurate reading of market conditions.
In addition to its capability, the Chainlink ecosystem is operated by some of the most trusted teams in the cryptosphere. By creating a high level of trust within its system, COTI has done a lot to make the CVI a future industry standard for market information.
The uses for volatility data in any market are diverse, and this kind of data will likely lead to new trading tools, as a volatility gauge is often used by algorithmic traders in their trading systems.
Signs of a Maturing Market
The upcoming CVI launch demonstrates how far the crypto markets have come in just a few short years. Tools like the VIX took decades to create, however, in the crypto space, the CVI has been developed a few years after cryptos came into the public eye.
Professional investors will no doubt welcome crypto tools that are based on the CVI – and given the open format of the CVI’s data distribution, it should be an easy sell to both crypto exchanges and legacy operations like the CBOE.
The debut of the CVI is just one more sign that crypto is entering the highest levels of finance, and will likely continue to expand in both popularity and use over the coming years.
The CVI’s Beta is live and can be seen by clicking here.
If you want to learn more about COTI, and the other projects that the company is developing, just click here to visit the company’s website.