A number of venture capital giants have closed a round of funding for the Ethereum-based volatility and derivatives protocol Volmex Finance.
According to a March 17 announcement by Volmex Labs, the funding round was supported by several leading decentralized venture capital firms including Alameda Research, Three Arrows Capital, Robot Ventures, CMS Holdings, IOSG Ventures, D64 Ventures and Fourth Revolution Capital to a number of individual angel investors, including Tyler Ward from BarnBridge. The amount collected was not disclosed.
Keegan Selby, co-founder of 4RCapital, posted on Twitter:
“I am delighted to be helping Volmex Finance launch volatility indices, a key financial element of the global quadrillion dollar derivatives market, at Decentralized Finance.”
The project, launched in December 2020, aims to hedge the volatility of Ethereum, which will open up a range of new DeFi applications and investment opportunities.
An index to measure the implied 30-day volatility of Ethereum called the ETHV Index v1 was introduced. It can be used in a similar manner to the Chicago Board Options Exchange’s VIX, which provides an estimate of the short-term volatility of US stock markets.
When Ethereum market volatility is low, investors can buy ETHV Index v1 futures or calls and sell them when market volatility increases. The team behind Volmex Finance stated:
“Volatility derivatives are a central pillar of modern finance because they are a cost-effective means of hedging against market volatility risk.”
To avoid the expensive fees associated with transactions on Ethereum’s main network, the protocol will leverage Optimism Layer Two scaling technology to make index queries and future trading functions cheaper and faster.
Optimism has recently been deployed on a number of DeFi platforms including Synthetix and MakerDAO. The scaling is rumored to be provided for the highly anticipated version 3 of Uniswap.
Volmex also has a bitcoin-based derivative called BTC Index v1 that allows traders to leverage the protocol to get an idea of the expected volatility of the underlying asset.