Volatility and DeFi: Why I Built Benchmark

Benchmark Protocol
Nov 19, 2020 · 5 min read

Math-based choices command extensive understanding and execution. Judgment- initiated choices are justly disputed and frequently provocative, at least until put into exercise and exhibited. Any substantive institution reluctant to tolerate a level of uncertainty is faced to limit itself to choices of the former.

Some decisions can be made with concrete data, but most significant professional decisions rely on judgment. The Benchmark Protocol is built on this premise: a protocol driven by the numbers and a transparent organization. Tasked with formulating and delivering solutions from a business perspective.

My career started out at Fidelity Investments after graduating with a double major in Accounting & Finance from the University of Delaware. Thereafter, I transitioned into Investment Management where my clientele focused on high profile banks, hedge funds and private equity firms in the alternative investment space. I am currently a Vice President at Citibank, where I am exposed to a litany of derivatives projects including interest rate swaps, basis and cross currency swaps, FX products and hedging devices. Evidently, my background screams traditional capital markets.

Companies that are self-righteous and complacent die out. True ingenuity in the broader cryptocurrency space is devoid of practical use cases that are seen through to execution. A vast majority of the projects that clear this hurdle are barren of adoption. These iterations of Blockchain forks and next-gen promising chains strive to stay relevant to make decisions and fight for market share.

Enter Benchmark Protocol: The first Cryptocurrency Hedge utilizing the volatility index. Benchmark Protocol is meant to withstand liquidation events during periods of high volatility by removing or adding tokens to total supply by conforming to capital markets, volatility driven trading activity.

The CBOE VIX futures contract is the most frequently traded, exchange-listed volatility futures contract in the world. VIX futures provide market participants with opportunities to trade their view of the future direction of the expected volatility of the S&P 500 Index. When the VIX is lower than the historical norm, the negative correlation of the exceedingly volatile VIX to the S&P 500 index makes it reasonable to use VIX options as a hedge to protect a portfolio against a market crash. In this case, Benchmark Protocol uses a two-pronged approach: hedge and collateral.

On March 18, 2020 the VIX Index hit an all time closing high at 82.69
The S&P 500 declined from an all-time closing high of 3386.15 on February 19 to 2280.52 on March 18, resulting in a 32.6% move in less than a month.

Wall Street’s chosen instrument of stock-market volatility has recently soared to its highest level since the summer as growing COVID-19 cases and lockdowns have incited worries of a protracted economic slippage. Both investors and macro markets are facing elevated degrees of uncertainty regarding the physical and financial impacts of the virus. The derivatives market, which is heavily relied upon by the VIX, is said to be valued at over $1 quadrillion dollars. The crypto markets are bereft of a true proxy on volatility, and Benchmark is primed to assimilate to one of the biggest musts in crypto markets: a true hedge.

Exposure to the MARK token, Benchmark’s native asset will serve users by pulling in daily VIX settlement prices at 4:15 PM EST (coinciding with the close of the New York Stock Exchange floor). The closing of the stock market is the most volatile time of the trading day, so pulling in key data points is necessary to reflect the true state of the markets. The VIX data points serve as a catalyst to augmenting the elastic nature of the protocol’s total supply of tokens in the Benchmark ecosystem. Volatility is critical to the operation of all financial markets. Relevancy matters, as nearly all industries have faced substantial increases in distinctive risk from the pre-COVID-19 period to now. As stabilization and price discovery take hold in crypto markets, it is clear that nominal changes in total risk can be explained by daily change in the VIX, leveraged by Central Bank Rate Targeting and the overarching reaction to COVID-19 news.

Now, with developed and mature asset classes within the cryptocurrency space and increased correlation with the movement of capital markets, the integration of a protocol with VIX data is not only relevant, but necessary. The VIX was made to evaluate risk and determine the cost of insurance. The most notable internal volatility index in crypto markets is the Bitcoin Volatility Index (BVOL). However, there still remains a level of unpredictability in these markets despite broader adoption and asset class growth and increased regulation. It is therefore important to pull in a feed of external VIX data representing the absolute true market sentiment, or the true cost of hedging. This in turn will serve as the focal collateralization piece, post bootstrap.

The original idea behind Benchmark was to create a bridge, driven by VIX data, connecting traditional finance to cryptocurrency markets. The biggest opportunities in capturing market share are platform-driven. The long-term use case is creating a stable mechanism to cohort adhesive and sticky collateralization applications for the everyday customer. When you compose the body of infrastructure that is starting to rapidly progress and reform, you reap not only the personal development, but also the growth of the infrastructure you are building on. General blockchain application is the central focal point of what Benchmark is building. When I look at the potential customer base, I do not just look at practical blockchain, I also ask what my competitors are doing. Keeping in stride with your competition is what will keep you educated, pertinent, and viable.

Some experiments will fail. However, Benchmark’s thesis is that one big success can often make up for all those failed experiments. With a strong foundational core, Benchmark Protocol looks to capitalize and innovate. The team aims to fight for a piece of the larger pie, not only the relevant and topical crypto markets, but ultimately mainstream consumer markets as well.

Written by David Mass, Creator of Benchmark Protocol

About Benchmark Protocol

The Benchmark Protocol is an Uncorrelated, Liquid, VIX-denominated Collateral Utility. The protocol is a rules-based, supply-elastic collateral utility that adjusts supply based on volatility indexes (VIX) and deviations from the target metric — equal to 1 Special Drawing Rights (SDR) unit. Employing the SDR creates a larger use case rather than exposure to just one currency; the application of this creates a larger user base and delineated exposure to markets around the world. The DeFi space needs a collateral utility that retains its efficacy and increases inherent, baseline liquidity during periods of high volatility.

Benchmark is built on the Ethereum blockchain. The MARK token is the native asset in the Benchmark network and provides only the utility value available to it through the Benchmark network. The supply of MARK adjusts by tracking the movement of the CBOE volatility index.

Learn more by visiting the project website:

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BenchmarkProtocol

Benchmark Protocol is a Supply Elastic Collateral and Hedging Device, Driven by the Volatility Index

BenchmarkProtocol

The Benchmark Protocol is an Uncorrelated, Liquid, VIX-denominated Collateral Utility. The protocol is a rules-based, supply-elastic collateral utility that adjusts supply based on volatility indexes (VIX) and deviations from the target metric — equal to 1 Special Drawing Rights

Benchmark Protocol

Written by

Benchmark Protocol is a Supply Elastic Collateral and Hedging Device, Driven by the Volatility Index.

BenchmarkProtocol

The Benchmark Protocol is an Uncorrelated, Liquid, VIX-denominated Collateral Utility. The protocol is a rules-based, supply-elastic collateral utility that adjusts supply based on volatility indexes (VIX) and deviations from the target metric — equal to 1 Special Drawing Rights

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