- None of this is investment advice.
- Much of the below analysis ignores any difference between futures and spot prices, and ignores the effects of fees.
- BVOL products, like the rest of FTX, are not being offered to US users.
- Much of this is approximate.
Note: see here for our Tokenized Product Transparency Policy.
On 2020-06-17, BVOL tokens will update their basket to include futures as well.
What Are BVOL Tokens?
BVOL tokens are ERC20 tokens that attempt to track the implied volatility of crypto markets.
There are two BVOL tokens: BVOL and iBVOL. BVOL attempts to track the daily returns of being 1x long the implied volatility of BTC; iBVOL attempts to track the daily returns of being 1x short the implied volatility of BTC.
How Do BVOL Tokens Work?
Each BVOL token gets its price action by trading FTX MOVE contracts and BTC-PERP contracts. For instance, say that you want to create $10,000 of BVOL . To do so you can send in $10,000, and the BVOL account on FTX buys $10,000 worth of FTX MOVE contracts and shorts $10,000 of BTC-PERP contracts. Thus, BVOL is now 1x long MOVE and 1x short BTC-PERP.
You can also redeem BVOL tokens for their net asset value. To do that, you can send your $10,000 of BVOL back to FTX, and redeem it. This will destroy the token; cause the BVOL account to sell back the $10,000 worth of MOVE contracts, buy back the $10,000 worth of BTC-PERP, and credit your account with $10,000.
This creation and redemption mechanism is what ultimately enforces that the leveraged tokens are worth what they're supposed to be.
Why are BTC-PERP contracts included?
To give an example say that BTC is expected to move 1% per day. If BTC is trading at $10,000, then the daily move is $100; but if BTC falls to $9,000, the daily move is $90. This means that if implied percent volatility doesn't change, a decrease in BTC price will lead to a decrease in BVOL price and an increase in iBVOL price. After this change, the decreased dollar-based move of BTC (from $100 to $90) will be offset by the gain in the BTC short position in BVOL (short $100 of BTC-PERP will gain $10 from BTC falling to $9,000), and so BVOL and iBVOL's price won't change.
Why Use BVOL Tokens?
Sometimes, you might not have an opinion on whether BTC is going to go up or down, but might have an opinion on how much it will move. If you think that markets are going to be more volatile than expectations, you could buy BVOL ; if you think they're going to be less volatile than expectations, you could buy iBVOL .
You can buy BVOL tokens just like normal ERC20 tokens on a spot market. No need to manage collateral, margin, liquidation prices, or anything like that; you just spend $10,000 on BVOL or iBVOL and have a token.
BVOL tokens are ERC20 tokens. That means that--unlike margin positions--you can withdraw them from your account! You go to your wallet and send BVOL tokens to any ETH wallet. This means you can custody your own BVOL tokens; it also means you can send them to other platforms that list the BVOL tokens.
How Do You Buy/Sell BVOL Tokens?
There are multiple ways to do so.
Levereged Tokens Spot markets (Recommended)
The easiest way to buy a leveraged token is on its spot market. For instance you can go to the BVOL/USD spot market and buy or sell back BVOL. You can find a leveraged token's spot market by going to the tokens page and clicking on the name; or by clicking on the underlying future on the top bar and then on the name of the market.
Note that FTX won't be the only exchange that lists BVOL tokens! You can trade FTX's BVOL Tokens on other platforms; see here for a partial list. Because they're ERC20 tokens, you can send them back and forth using your wallet.
You can also buy or sell BVOL tokens directly from your wallet page using the 'CONVERT' function. If you find a token and click 'CONVERT' on the right hand side of the screen, you'll see a dialog box in which you can easily turn any of your coins on FTX into the BVOL token.
Finally, you can create or redeem BVOL tokens. This is not recommended unless you have read through all of the documentation on BVOL tokens. Creating or redeeming BVOL tokens will have market impact and you won't know what price you ultimately get until after you've created or redeemed. We recommend using the spot markets instead.
You can create or redeem a BVOL token by going to the tokens page and clicking 'more info'. If you create $10,000 of BVOL, this will send a market order to buy $10,000 of MOVE contracts, to sell $10,000 of BTC-PERP, calculate the price paid, and then charge you that amount of money; it'll then credit your account with the corresponding amount of BVOL.
What Exactly Do BVOL Tokens Represent?
In order to get their volatility exposure, BVOL tokens trade FTX MOVE contracts and FTX BTC-PERP. In particular, they aim to hold 1/6th each of each MOVE contract that has not yet had its strike price determined as of each rebalance. That means 1/6th each of:
- Tomorrow's MOVE contract
- Next weeks' MOVE contract, and the two weeks after that
- Next Quarter's MOVE contract, and the quarter after that
- -1x BTC-PERP (Short)
IBVOL, conversely, aims to hold -1/6th each of those MOVE contracts and 1x BTC-PERP (Long)
Here is an example:
How Do BVOL Tokens Rebalance?
Every day at 00:02:00 UTC the BVOL tokens 'rebalance'. That means that each BVOL token trades on FTX in order to once again reach its target leverage and roll its positions.
BVOL and IBVOL are meant to represent implied volatility--what the market-implied guess at how volatile things will be is. That means that they need to hold entirely MOVE contracts whose strike prices have not yet been determined.
As such, every day, BVOL and IBVOL do the following:
a) sell any MOVE contracts that just had their strike price determined
b) buy newly listed MOVE contracts
c) Maintain 1x and -1x BTC-PERP leverage
So on April 13th at 00:02:00 UTC, BVOL and IBVOL would do the following transition:
Note that in this case that only involves rolling the daily MOVE contract; but at the beginning of a week or quarter it would involve rolling those as well.
BVOL targets +1x leverage, and IBVOL targets -1x leverage.
As such, BVOL will not need to significant alter its leverage at rebalance time: there may have been small amounts of slippage but by and large its leverage should always be 1.
IBVOL, however, will need to. If volatility is down, iBVOL will have gains and will reinvest them by selling more MOVE contracts; if volatility is up, iBVOL will have losses and will buy back MOVE contracts to reduce risk and attempt to avoid liquidation.
Because of this BVOL almost completely avoids liquidation risk, but IBVOL is at risk if volatility doubles in a day. To mitigate this, iBVOL also has daily rebalances.
If market moves cause iBVOL's leverage to reach -4/3, it will do an intraday rebalance to reduce risk. Specifically,
- FTX periodically monitors for iBVOL leverages. If iBVOL leverage goes above 4/3 in magnitude, it triggers a rebalance.
- When a rebalance is triggered, FTX calculates the number of units of the underlying iBVOL needs to buy/sell to return to -1x leverage, marked to prices at that time.
- The formula for this is:
- Desired position (DP): [Target Leverage] * NAV / [underlying mark price]
- Current Position (CP): current holdings per token of the underlying
- Rebalance size: (DP - CP) * [LT tokens outstanding]
- The formula for this is:
- FTX then sends orders in the FTX MOVE and BTC-PERP orderbook to rebalance. It sends a maximum of $1m of orders per 10 seconds until it has sent the desired total size. These are all normal, public IOCs that trade against the prevailing bids/offers in the orderbook at the time.
- Note that this ignores difference between the underlying price when a rebalance is triggered and when it happens; ignores fees; and may have rounding errors
- Note one other caveat here: BVOL tokens will limit their maximum leverage. In addition to having overall account leverage, they will not allow themselves to hold more contracts of a MOVE product than they would if its price were BTC/20. In other words, if a MOVE contract is trading at 2.5% of a BTC, then BVOL will only have half as much as it otherwise would.
What are BVOL Tokens' Performance?
Each day, BVOL tokens will have their target performance; so for example, each day (from 00:02:00 UTC to 00:02:00 UTC the next day) BVOL will move about as much as the basket of MOVE contracts does, and iBVOL will move the inverse amount (unless there's an intraday rebalance).
However, over longer time periods BVOL tokens will perform differently than a static position.
This is because they rebalance each day to roll to new contracts and return to their target leverage.
The long-term behavior of this then depends on the relative performance of the MOVE contracts they hold on the days they hold them.
BVOL tokens' performance will be +/-1x the underlying performance if you're measuring since the last rebalance time. In general BVOL tokens rebalance every day at 00:02:00 UTC. This means that the trailing 24h moves might not be exactly +/-1x the underlying performance, rather the moves since midnight UTC will be.
In addition, iBVOL tokens that are over leveraged rebalance whenever their leverage reaches -4/3. This happens, roughly, when MOVE contracts are up 33% in a day. So in fact the BVOL token performance will be +/-1x the MOVE contracts since the asset last moved 33% that day if there was a large move and the token lost to it, and since midnight UTC if there wasn't.
What do BVOL Tokens hold?
BVOL hold MOVE contracts and BTC-PERP contracts on FTX. That means that they will get their exposure to the underlying assets through the MOVE contracts and BTC-PERP futures. That also means that they will be subject to the price movements, premiums, market conditions, trading fees, etc. of the MOVE and BTC-PERP futures.
What Are The Fees?
There are two types of fees on BVOL tokens. There is a 0.10% creation and redemption fee; note you only pay this if you create/redeem, not if you buy in a spot market or convert. There is also a 0.03%/day management fee on BVOL tokens. This is just taken out of the net asset value of the BVOL tokens; you won't see an actual token balance decrease or USD charge in your account.
You can find the API docs for BVOL tokens here.
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