Welcome to the COTI LIVE AMA with The Gem Hunters. We would like to kindly thank the team for sharing information on their new project with our community.
1) To get started, could you please give us some background information about COTI and your latest achievements?
Hello everyone, I’m Shahaf Bar-Geffen and I’ve been the CEO for COTI for three years and am part of the founding team. I’m also known as the founder of WEB3 group and of Positive Mobile (both of which were acquired). I have studied Computer Science, Biotechnology and Economics in Tel-Aviv University and have had a long Air Force career.
Hi, I’m Dr. Nir Haloani, COTI’s CTO. I’ve been with the company since the very beginning. As part of my experience, I have a math PHD in Applied Mathematics, hold 14 patents and sold a company to IBM and was their Head of Research for 5 years.
COTI is a fully encompassing “finance on the blockchain” ecosystem that is designed specifically to meet the challenges of both centralized finance (fees, latency, global inclusion and risk) and Decentralized Finance (DeFi) (fess, clogging and complexity) by introducing a new type of DAG-based base protocol and infrastructure that is scalable, fast, private, inclusive, low cost and optimized for finance.
COTI is a working product that is already in use and generating revenue. Much has happened at COTI during 2020 with fruitful and very exciting developments in many different aspects, including a few working products and the introduction of a new tier of decentralized nodes and Staking, which enables token holders to stake COTI and to earn rewards.
Milestones to date:
1. We have launched COTI’s staking model to run Full Nodes and it is one of the best in the industry https://bit.ly/34Z20Ai
2. We have launched COTI Pay VIPER, the newly redesigned COTI wallet that includes many more features such as: an integrated Interoperability Bridge, full Staking 2.0 console, Multi-Asset support (including BTC and Stable Coins), Optimized Fiat On-Ramp, 1-click payments, simple Send/Receive, DeFi, and a Virtual Debit Card. https://bit.ly/377eSqJ
3. We are generating revenue from real world clients, processing over $11M USD every month. In February 2020, we unveiled Paywize and have since processed our first credit card transaction on the COTI network. Last week we revealed the first gaming platform to use Blockchain Dollars - our white label product for gaming merchants to accept stable coins as a form of payment. Another big gaming merchant is to be announced very soon. https://bit.ly/3725iFy
4. COTI is traded on over 14 exchanges and has 4 fiat pairings whereby it can be purchased directly with a credit card. https://bit.ly/311kdMk
5. Last month we launched COTI-X, COTI's liquidity pool and fiat on-ramp, marking an important achievement as COTI-X allows us to bootstrap and supply liquidity to both the COTI network and external networks in a manner that was not previously possible. https://bit.ly/3dloBL7
6. We introduced Paywize: a subsidiary of COTI that offers credit card processing for merchants and which has already celebrated over 100 signed merchants such as Kindred, Hellcase, Dunder, Goldwin, GoWild, and many more. https://bit.ly/3dlCfxN
And we still have a lot more lined up for 2020!
2) So today, we’ll discuss a very hot topic, the new “Market Fear Index” COTI has released called cVIX. Could you please tell us what it is?
cVIX is a full-scale decentralized ecosystem that brings the sophisticated and very popular “market fear index” to the crypto market and is created by computing a decentralized volatility index from cryptocurrency option prices, together with analyzing the market’s expectation of future volatility.
By computing a volatility index (cVIX) from cryptocurrency option prices, cVIX analyzes the market’s expectation of future volatility and addresses the challenging liquidity environment of this evolving asset class, allowing for an extraction of the needed data to evaluate implied volatilities.
The cVIX index calculation follows the classic approach, based on the Black-Scholes option pricing model, adopted to the current crypto-market conditions, while working in a decentralized way. cVIX is an innovative decentralized, stable, transparent, informative and replicable benchmark for cryptocurrency implied volatility. cVIX includes a decentralized governance component, where holders of the $CVIX token can vote on matters such as the tradable assets, leverage used, deposit amounts and more - while enjoying some of the platform fees.
3) Can you give us some background on what the traditional VIX is, what it’s used for?
Most of us have heard of the VIX index in the stock market, the index that is sometimes referred to as the “Market Fear Index”, which measures the implied market volatility and acts as a counter index to the standard financial indexes that track upwards market movements. Volatility is an important statistical measure of market behaviour and the most common risk measure in financial theory. In plain words, if the volatility rises for the same asset or index, it means that the market becomes unstable. So, it is quite natural that the VIX has become one of the most quoted indexes and a cornerstone in many of the trading strategies relied on by professionals. Investors can use VIX to measure the level of risk, fear, or stress in the market when making investment decisions. Traders can also trade the VIX using a variety of options and exchange-traded products, or use VIX values to price derivatives and by doing so, can effectively hedge against the overall market.
The VIX index has paved the way for using volatility as a tradable asset via derivative products. CBOE launched the first VIX-based exchange-traded futures contract in March 2004, which was followed by the launch of VIX options in February 2006. Today, there are many VIX-linked instruments available for trading, including leveraged and short ETN/ETFs as well as futures/options on these instruments.
Such VIX-linked instruments allow pure volatility exposure and have created entirely new asset classes. Active traders, large institutional investors and hedge fund managers use VIX-linked securities for portfolio diversification, as historical data demonstrates a strong negative correlation of volatility to the stock market returns – that is, when stock returns go down, volatility rises and vice versa.
As such, we believe that the crypto market should have its own decentralized VIX, its own “market fear index”. We have created cVIX so that traders can hedge themselves against volatility or lack thereof.
4) How do you calculate cVIX and how is it decentralized? How does it work? Can you share examples?
Our cVIX index calculation is based on a classic approach, the Black-Scholes option pricing model, and is adapted to the current crypto-market conditions. In order to ensure decentralization and transparency, we use Chainlink architecture with multiple oracles to retrieve the required data and calculate the formulated cVIX using external adapters. The calculated results from each Oracle are aggregated, verified, and passed to the blockchain node so that the data can be accessed and used both by the requesting smart contract and as a service for other use case implementations.
The combined cVIX index is a weighted sum of cVIX indices calculated for several cryptocurrencies (for example BTC and ETH), where weights are based on the currency market cap.
The tech is awesome, but I'm sure everyone is asking if it actually works in real life with real market events. So, check this out:
The below chart represents the Bitcoin price chart for 2020 with two visible market events:
1. The COVID-19 crisis (spring 2020)
2. The Defi-tokens price crash at the beginning of September 2020
Now let’s examine the cVIX chart representing both of these events while remembering that “Market goes down, cVIX goes up”:
Obviously, the above chart shows that there is a strong inverse correlation between cVIX and the BTC prices. It's like having a magic ball that tells you where the market is going. You can trade on the index too, but I'll get to that.
Here is another recent example:
The following is a 14-day chart of the cVIX index (ranged between 10-200), as of October 4th, 2020. This demonstrates the correlation the index has with macroeconomic events that affected the markets, such as the drop in global stock exchanges from September 21st and the events surrounding the Bitmex lawsuits and Trump Coronavirus news on October 1st. The spikes in the graph represent times where the cVIX index has spiked, implying more volatility and fear in the market.
5) Who can use cVIX? Traders? Liquidity providers?
Both! cVIX has two main participants: Traders and Liquidity Providers.
In addition to the index itself, we will also introduce a fully decentralized and self-adjusting trading system that enables a permissionless way to enter long/short positions on the crypto volatility index, allowing users to hedge themselves from market volatility. Traders can use the cVIX in order to hedge their cryptocurrency holdings against volatility. For example, a trader may have a long position on a portfolio of various top currencies and fears adverse market conditions, and as such, takes a LONG position on the cVIX, hedging the value of their overall portfolio (in the case of a market drop, the trader may sustain some loss on their cryptocurrency portfolio but will profit from their cVIX position). In that way, the trader essentially buys insurance against adverse conditions.
Another use case for a trader may be that of a trader who needs volatility in their trading strategy in order to profit. Such a trader may want to insure themselves against market stagnation, where no volatility means less profit. In this case, the trader will buy a SHORT position on the cVIX.
The other type of user in the system is a liquidity provider. Liquidity providers on cVIX play a much bigger role compared to their role when they simply provide liquidity to swap platforms like Uniswap or Balancer.
6) On that note, what trading strategies can traders implement in the system?
There are a multitude of trading strategies using the volatility index.
The following describes the 3 most common strategies for trading the volatility index:
“Black swan” - hedging strategy
If a trader expects that some large-scale shock can affect the whole market, he can buy cVIX and, if the market downturn really happens, the trader can make substantial gains from the trade. For example, if the trader entered the market on some of the first days of February 2020 when the cVIX level was at 50, he could have made a 260% profit closing the position when the cVIX level was at 180.
Overheated Market - hedging strategy
Unlike the previous trading strategy, the following is a much more common situation for all financial markets. Let’s look at the last known one, at the beginning of September. The event is easily distinguishable on the Bitcoin price chart above, and even more so if we examine the Ethereum chart:
cVIX on Ethereum
The explanation for this market behaviour is the overbought state of the market into the “DeFi” tokens - very promising and quickly developing market segment, but no investment market can be stable being overbought. As a result, when the stock market plunged by approximately 5%, cryptocurrency markets lost much more and the Defi components which are based on Ethereum got the most significant drawdown.
The possible strategy of using cVIX for this situation is to buy volatility entering the rising market. If a trader starts buying into cVIX when it is at 50 entering the market at the last day of August, together with Ethereum or other tokens, then the gain in cVIX would have compensated most of his losses in Ethereum all through September.
‘The Back Slope’ - speculative strategy
As demonstrated in the previous examples, after a sharp surge, cVIX usually goes down to its average levels. If a trader sells cVIX at such a slope, the trader can make a profit once the index is going down. Like all speculative trades, this strategy is more sophisticated and requires more analysis, but on average it can be more profitable than the other examples described above.
The idea remains simple: if you have a feeling on where the market is going - to volatility or stagnation - you can use cVIX to trade on it (while hedging your portfolio).
7) How do Liquidity Providers benefit from cVIX? Is this a similar role to Uniswap?
Liquidity providers on cVIX play a much bigger role compared to their role when they simply provide liquidity to swap platforms like Uniswap or Balancer.
In fact, liquidity providers on cVIX play the role of the counterpart for every trade made on the platform. So, if a trader has bought a LONG or SHORT on cVIX and lost that trade, the liquidity providers are the ones to recoup the lost trade, and vice versa.
In other words, if a trader bought insurance against volatility or against stagnation, the liquidity providers play the role of the insurance company. This is a great position to be in as it is much more lucrative than just providing liquidity for a small fee and being at risk of impermanent loss. With cVIX, liquidity providers make excellent fees AND see their liquidity pool grow over time making their projected APY far greater than what it is on other platforms that just share trading fees for liquidity provisioning.
8) You are introducing $CVIX as a governance token. What is the token utility?
cVIX operates a permissionless and open-source protocol so any user can be a part of the development of the network. It includes a decentralized governance component, where holders of $CVIX tokens can vote on matters such as the tradable assets, leverage used, deposit amounts, platform fees and more.
By participating in the platform, by either trading on the platform or taking part in the governance of the platform, $CVIX holders will also share fees from the cVIX platform.
9) $CVIX has a fair distribution model. What does it mean?
Distribution of the governance tokens ($CVIX) will run over a period of three years, with no pre-mine, no fundraising and no allocation for VCs or Whales.
Everyone starts equally and users of the platform will govern it and enjoy its fees.
We’re giving all $CVIX tokens to the community for no cost. We didn’t assign any value to them as we’re going to let the market decide what governing the protocol is worth.
We believe that in order for cVIX to be successful and widely adopted, as it should, the only way to do it is to align everyone’s interest and give users the opportunity to shape the future of the protocol, while also enjoying its success.
10) Can you share the token metrics with us?
The $CVIX tokens three-year allocation distribution:
$CVIX Distribution during the first 4 months:
$CVIX Distribution during the first 3 years:
The participants of the platform will hold the majority of the $CVIX tokens, obtaining them by using the platform as traders or liquidity providers. The rest will go to the COTI community (for free to $COTI token holders).
11) Can you share more details about each distribution of $CVIX tokens?
Yes, there are three types of distributions:
1. Distribution to native $COTI holders:
Starting tomorrow, October 14th at 6am UTC and ending once the cVIX platform is launched, we’ll be distributing 10% (3.2M $CVIX tokens) of the $CVIX supply.
To make sure that distribution is fair and that $CVIX is well distributed, the amount of $COTI allocated for the claim process has been limited to 500K $COTI coins.
Distribution of $CVIX to $COTI holders is not a onetime event. The first distribution will be the biggest one and then the following distribution will be 10% less and so on, until 3.2M $CVIX tokens are distributed when the platform is launched, so stay tuned for future distribution events!
Opportunities to claim more $CVIX will be limited in time and announced a few hours before they take place, to avoid market manipulation and to keep distribution as fair as possible.
2. Distribution to liquidity providers:
In order to encourage potential liquidity providers to review cVIX’s offering, we’ll be offering $CVIX to liquidity providers that stake their Uniswap LP token with it. Once they are ready to migrate completely to cVIX, they will be able to do so with a click of a button and get even more $CVIX, on top of the other benefits that liquidity providers get.
The first liquidity pool that will be incentivized is the COTI ERC20 / ETH pool on Uniswap
The next liquidity pools to be incentivized will be decided by the cVIX decentralized governance. A total of 15% (4.8M) $CVIX tokens were allocated for liquidity pool incentives. Distribution will start after the first liquidity pool is launched and will end when all 4.8M $CVIX tokens are distributed.
In order to avoid the short-lived hype cycles that come with distribution models that start with high amounts and decrease rapidly, it was decided to reverse the process. The first distribution will be the smallest one, the next one bigger and so on. That way, momentum and interest are kept as the overall liquidity locked on the platform grows.
3. Distribution to cVIX platform users - Liquidity and Usage:
This distribution will begin at the cVIX platform launch and end three years later.
Ultimately, users of the cVIX platform will completely govern it, as should be the case with any decentralised governance platform. Accordingly, 60% of all $CVIX tokens will be distributed to platform users, for providing liquidity to the LP’s and for making trades on the platform itself.
The distribution of the Liquidity and Usage allocation will be presented closer to the platform launch. That said, such allocations can and will be subject to changes as decided by the cVIX decentralized governance, controlled by $CVIX holders.
A lot to take in, but simple principle is:
1. if you have $COTI, you get $CVIX.
2. if you use the platform, you get $CVIX.
12) So how do we get $CVIX tokens now? What are the next steps?
1. If you don’t already have a COTI Pay VIPER wallet, go ahead and create one now (pay.coti.io).
2. Once you have a wallet, make a claim for $CVIX by clicking the “Claim” button.
3. If you made the claim and you meet the criteria, congrats, you will be one of the first to own a $CVIX token.
4. If you have a COTI ERC20 token, consider posting liquidity on COTI ERC20/ETH pair on Uniswap to get $CVIX.
Below are a couple of easy guides made by the team:
We also have a telegram group where we discuss $CVIX and update on progress and distributions: https://t.me/cvixofficial
Thankyou for answering our questions, it has been a pleasure to host you live at TGH. We look forward to following the progress of your team and COTI Network!