- Chainlink is introducing support for realized and implied volatility oracles, providing an invaluable tool for DeFi developers and enabling a new generation of risk management strategies and derivatives markets.
- These volatility oracles build on Chainlink’s already robust foundation of Price Feeds, Liquidity Indicators, and more, to provide deeper insights and enhanced security to the DeFi ecosystem.
Chainlink has long been recognized as a cornerstone of the DeFi ecosystem, furnishing accurate, tamper-resistant, and amalgamated price reference data for an increasingly diverse range of cryptocurrencies, commodities, and fiat currencies. It has been instrumental in DeFi’s expansion, supporting its growth to over $170B in Total Value Locked at its zenith, while safeguarding users from manipulative exploits.
Asset volatility data is a fundamental component of any robust financial market, including #DeFi.
This post introduces Chainlink Realized Volatility Data Feeds and Chainlink Functions for implied volatility, now available on multiple blockchain testnets.https://t.co/CEXXyw2MPF…
— Chainlink (@chainlink) June 12, 2023
Nevertheless, the burgeoning demand from DeFi applications for a reliable source of external data extends beyond mere price data. It encompasses various other pivotal metrics that can serve as essential inputs for the design of more intricate financial products and automated risk management strategies. In an ongoing endeavor to meet market demand for unique data points, Chainlink remains committed to the exploration and development of new product innovations that make such data readily accessible to developers.
Most recently, Chainlink Liquidity Indicators have been launched in beta to bolster risk management in DeFi derivatives via Chainlink’s low-latency oracles. These feeds offer derivatives markets the means to minimize the risk of outsized positions on illiquid assets and enable lending markets to tweak parameters like Loan-to-Value (LTV) ratios based on prevailing liquidity conditions.
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In a bid to further empower DeFi developers, Chainlink is now introducing support for realized and implied volatility oracles. These oracles equip developers with a potent tool to enable a fresh wave of on-chain risk management strategies and unique derivatives markets.
Volatility in financial markets denotes the frequency and magnitude of price changes for an asset over a specified period. It’s important to note that volatility doesn’t quantify the direction of price changes, but their variability. Two different assets may yield the same returns, but an asset with higher volatility displays larger price swings and is often deemed riskier. Volatility is typically classified into two types: realized and implied.
Realized volatility measures how much an asset’s price has fluctuated in the past over a given timeframe. This metric is used in various financial derivatives instruments like volatility futures and options, letting market participants speculate on or hedge against a specific market’s volatility. Conversely, implied volatility is a forecast of future market fluctuations. It doesn’t predict the direction of an asset’s price change, but estimates the size of the price swing.
Making volatility data accessible on-chain via oracles within the DeFi ecosystem facilitates the introduction of new products and the incorporation of advanced risk management strategies. This further enhances the utility and maturity of the DeFi ecosystem as a whole.
As a versatile Web3 services platform, Chainlink can deliver a variety of datasets on-chain and is now introducing realized and implied volatility datasets. Chainlink Realized Volatility Data Feeds provide DeFi developers with the necessary data for their on-chain applications, and are now live and available for testing across multiple blockchain testnets. On the other hand, implied volatility datasets can be accessed using Chainlink Functions, a Web3 serverless developer platform that can fetch data from any API and run custom compute.
With the availability of both realized and implied volatility data on-chain through Chainlink’s decentralized oracle networks, DeFi applications can dynamically modify their risk parameters to reflect evolving market conditions. In turn, lending protocols, margin trading, options pricing, and treasury management can be greatly enhanced with improved functionality and safety measures, driving the DeFi ecosystem to new heights.
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