The Fear Volatility Token tracks the volatility of Bitcoin and Ethereum through DEX options exposure. Since there isn't a commonly recognized volatility index for cryptocurrency or a derivatives market for VIX, the Fear derives the volatility exposure directly from liquid options contracts, which represents the actual market sentiments of future price movements.
The ZooVIX index calculates the implied volatility of the most liquid options contracts on DEXs, while the Fear Volatility Token tracks the ZooVIX index by directly holding these contracts in an Iron Corridor Option Strategy. This strategy effectively gives investors long volatility exposures––allowing for hedging or speculation on real short-term market volatility.
The engine behind The Fear is IndexZoo’s Habitat Protocol. It manages a portfolio of options contracts constructed to give investors long exposures to short-term market volatility. When a user mints a Fear token, they send USDC/USDT to the protocol. The Habitat Protocol will open a combination of options positions on a DEX that composes the Iron Condor Strategy. The protocol's rebalancing module automatically rolls the contracts forward daily and uses a calendar rebalance strategy that aims to track the ZooVIX index daily.
When a user mints or redeems the Fear token, the Habitat Protocol will close the corresponding position amount and send the USDC/USDT at a mark-to-market price of the Iron Corridor Strategy. Generally, when the market volatility rises, the Iron Corridor Strategy will rise in value, and vice versa.
The Fear Volatility Token does not use a debt position or a margin account when constructing the options strategy. Habitat Protocol only selects the most liquid options contracts (see criteria) to avoid liquidity risk. The risk management of the Fear Token centers on minimizing tracking error against the ZooVIX Index and providing the most liquid mint/redemption spreads for users.
The rebalancing module utilizes low-latency DEX APIs to get the best executed and lowest price on the options contracts.
Users pay a 1.5% streaming fee and a 0.1% fee when minting/redeeming.