Concerns regarding Ethereum Volatility Index

So the idea is this, if you go to VIX there is no comparable way to trade spot VIX. There are VIX futures of course, and then there are the ETNs which are various replications based on the VIX futures. But if you would like to actually trade the spot VIX (and not future term structure of volatility - which VIX futures represent), you need to buy actual cash options expiring in 30 days and delta hedge in a very specific ratio.

When you do that, the only way to get long spot volatility is therefore take on theta risk. It costs you something to get long spot volatility, otherwise spot volatility is necessarily a range bound calculation with no cost of carry

VIX futures are priced such that in low volatility there is a steep contango to account for the fact you must pay more to be long VIX futs, b/c people are aware that this round bound nature exists.

VIX itself (or in this case ETH vol index), is constantly (nearly real time) representing a new set of option weights across multiple expirations constantly

Spot VIX is not representative of a fixed set of options or their payoffs or values.

So in that regard, it maybe is kind of like a free lunch to trade this b/c it’s necessarily a mean reverting process without any such attached cost of theta or contango/backwardation (accounting for the mean reversion)

Meaning, I would expect people to be willing to pay more than oracle when vol is low and less than oracle when vol is high if this were a product, relative to their ability to get volatility exposure elsewhere.

I’m not sure if the above analysis is correct or on-point but I thought it was worth mentioning.

George Simpson/ npSharkie (on Terra discord)

p.s. I’m a huge supporter of new assets like this being listed on Mirror, I would love hedge assets (inverses), new stocks, a few derivatives, pre-ipo, futs etc. I just want to make sure we make sure the structure we adopt is robust! Again I could be missing something.

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Yeah, what you’re saying is correct. Creating an masset using the VIX index or this EthVol index is not a good idea. It will trade at a complicated premium to the index price that most people won’t understand. That’s especially with something as volatile as ETH, which is almost certainly in a steep contango. Until there’s a derivatives platform on Mirror/Terra, mVIXY is the best choice for S&P vol and people that want to bet on ethereum vol should just go construct the bet on an options platform.

I mentioned this in discord the other day to drive home the point: The VIX is at 16.5 today and mirror offered it for $16.5. Do you think any time in the future VIX could be at 17.5, 18.5, 19.5 etc? It almost certainly will and you can lock it in by placing a limit sell order and waiting. You basically cannot lose on that bet other than opportunity cost. I will dump every penny I have into it if someone was stupid enough to mint that masset.