Monad is a next-generation Layer 1 blockchain that achieves 10,000 transactions per second through parallel execution. Learn more about how it works here.

Scalability remains a critical bottleneck for blockchain adoption, with current solutions forcing difficult trade-offs between performance and compatibility. As existing platforms struggle with these limitations, Monad emerges as the “most performant 

 and backed by $225 million in funding, Monad aims to solve blockchain's scalability challenge through innovative architecture. This article looks at its technical components, examines potential use cases, analyzes key challenges and explores its road map toward mainnet launch.

 is a next-generation Layer 1 blockchain that achieves 10,000 

 (TPS) through parallel execution. With full EVM compatibility at its core, Monad enables seamless deployment of high-performance blockchain applications.

Monad Labs emerged in 2022 from a team with extensive experience in high-frequency trading systems at Jump Trading. The project was founded by three technical pioneers: Keone Hon (CEO), James Hunsaker (CTO) and Eunice Giarta (COO).

The inspiration behind Monad came from the team's direct experience with blockchain infrastructure limitations. Having worked on low-latency trading systems, they recognized that sequential processing in EVM-compatible chains created unnecessary bottlenecks.

 platform, its technical constraints have held the entire industry back. Monad’s founders believed their background in distributed systems and high-performance computing could help solve these challenges.

Their vision gained significant validation in early 2024 when the project secured $225 million in funding through a round led by Paradigm. Notable investors included Electric Capital, Coinbase Ventures and GSR Ventures, providing the resources needed for their planned Q1 2025 mainnet launch.

Monad aims to solve the fundamental scalability challenges that have plagued EVM-compatible blockchains. Traditional chains like Ethereum can only process 15–30 TPS, creating bottlenecks during high-demand periods.

Monad addresses the growing frustration with high gas fees and slow transaction times that have limited blockchain adoption. By implementing parallel execution, Monad targets a throughput of 10,000 TPS, with 1-second block times and single-slot finality.

Most existing scaling solutions require developers to learn new programming languages or adapt to unfamiliar environments. Monad takes a different approach, maintaining full EVM compatibility so developers can port their Ethereum applications without code modifications.

Monad's architecture introduces four key technological components that work together to achieve its performance goals.

 is a custom consensus mechanism derived from the HotStuff algorithm. Optimizing the traditional three-phase process into two phases enables faster block finalization, while maintaining 

Monad's parallel execution enables simultaneous processing of multiple transactions. Rather than checking for dependencies up front, the system optimistically executes transactions in parallel and efficiently resolves any conflicts that arise.

Monad implements deferred execution by separating 

 from transaction processing. This approach lets nodes agree on transaction orders first, creating a more efficient pipeline that enhances overall throughput.

 provides a custom-designed database optimized for parallel processing. It focuses on maintaining current state data rather than complete history, enabling faster reads and writes during transaction execution.

Monad introduces several key benefits that address critical challenges in the blockchain space.

Monad's innovative architecture represents a breakthrough in blockchain scalability. Through parallel execution, MonadBFT's optimized consensus and efficient state management, the platform achieves 10,000 TPS while maintaining decentralized security.

The synergy between these components enables one-second block times and near-instant transaction finality. This performance unlocks new possibilities for blockchain applications that require exceptional throughput and rapid processing, from 

As an EVM-compatible blockchain, Monad solves developer accessibility at the bytecode level. This allows teams to deploy existing applications directly to Monad, eliminating the need for code rewrites or the adoption of new tooling.

Developers can continue to use familiar frameworks, wallets and analytics tools while gaining access to Monad's superior performance. This compatibility-first approach removes traditional barriers to adopting new Layer 1 platforms.

As the Monad network prepares for its mainnet launch, the platform faces challenges in converting its technical advantages into widespread adoption.

While Monad's technical architecture is impressive, success in the blockchain space requires more than just advanced technology. Building a thriving Monad ecosystem depends upon attracting developers, projects and users to the platform.

Despite full EVM compatibility that makes it easier for Ethereum developers to port their applications, convincing teams to migrate to a new Layer 1 requires significant community building, ecosystem support and grants for new teams.

Significant venture capital involvement in Monad, while providing substantial resources for development, raises questions about potential centralization. With over $225 million in funding from major investors, there are concerns about token distribution and governance control.

The custom nature of components like MonadDb and the modified EVM implementation also introduces questions about the level of decentralization in the platform's architecture. These proprietary elements require careful consideration regarding their impact on network autonomy.

Monad's combination of high throughput, low fees and EVM compatibility creates possibilities for various blockchain applications previously constrained by technical limitations.

Monad's architecture fundamentally transforms what's possible in 

Monad's architecture creates new possibilities for 

 and digital asset markets that require high-performance transaction processing:

Monad's unique architecture opens up new possibilities for businesses handling real-world data streams and operations at scale:

These use cases leverage Monad's ability to handle multiple concurrent state changes while maintaining data consistency, enabling enterprise-grade applications that were previously impractical on 

Understanding how Monad compares to existing Layer 1 solutions helps contextualize its position in the blockchain ecosystem. Let's examine the key differences between Monad and other major platforms.

Ethereum's Layer 1 mainnet processes 15–30 TPS with high gas fees. While Layer 2 solutions exist for scaling, Monad aims to achieve 10,000 TPS at the base layer while maintaining full EVM compatibility. However, Ethereum's battle-tested security and decentralization are viewed as unmatched in the industry.

Solana achieves high performance through its parallel processing architecture, and has built a thriving ecosystem. The key distinction with Monad lies in its development approach: Solana utilizes a custom Rust-based environment focused on maximum performance, while Monad aims to bring similar scalability benefits to the EVM ecosystem.

 features a theoretical maximum of 2,222 TPS through a network of 29 active validators. While this provides reliability and EVM compatibility, it trades some decentralization for performance. Monad aims to achieve much higher throughput without the same centralization trade-offs, though this remains to be proven in production.

Each of the above platforms has made distinct architectural choices in addressing the 

 of scalability, security and decentralization. Monad's effectiveness in balancing these factors will become clearer once its mainnet launches.

Since its founding in 2022, Monad has achieved several significant milestones in its development journey, including securing $225 million in funding led by Paradigm in early 2024. Its team has successfully built and demonstrated the platform's core technologies, particularly its parallel execution architecture and MonadBFT consensus mechanism.

The primary focus for Q4 2024 is the launch of Monad's public testnet. This will be the first opportunity for developers and users to interact with the platform's infrastructure and publicly validate its performance claims.

The Monad network mainnet launch is scheduled for Q1 2025, marking the official debut of its high-performance blockchain infrastructure. Following mainnet, the team plans to:

The road ahead focuses on careful testing and refinement to ensure a stable and secure mainnet launch while building a sustainable ecosystem.

Monad represents a significant advancement in blockchain technology, offering a solution that combines the best of both worlds: Ethereum's thriving developer ecosystem, and high-performance scalability through parallel transaction execution.

As the project progresses toward its mainnet launch in 2025, its success will depend upon its ability to foster a thriving ecosystem. While challenges lie ahead, Monad's architectural innovations could be on track to shape the future of high-performance, developer-friendly blockchain infrastructure.

Intermediate

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Monad: A High-Performing, EVM-Compatible Layer 1 Blockchain

Story has introduced the Agent Transaction Control Protocol (Agent TCP/IP), a new standard for agent-to-agent transactions in the AI ecosystem. 

The S&P 500 fell 0.09% and is set for weekly losses amid Fed hawkishness and inflation concerns. Coindesk Indices, an index measuring broader cryptocurrency market performance was down by 3.37%, with Bitcoin and Ether dropping by 4.33% and 7.65%, respectively in the past 24 hours.

Today's top performer is MOCA, which surged 38.6% following the launch of Mocaverse 3.0, a chain-agnostic digital identity system that empowers users and connects ecosystems.

Mocaverse (MOCA), founded in 2017, is an NFT collection and community platform by Animoca Brands, providing access to an exclusive web3 ecosystem through unique digital characters and experiences. 

 introduces a chain-agnostic digital identity system that unifies user data and enables interoperable ecosystems. Through its AIR Kit, users gain control over their identity and rewards, while businesses can verify credentials and connect ecosystems. Backed by Animoca's network, it addresses digital fragmentation across sectors like DeFi, healthcare, and gaming.

Check Out the Latest Prices, Charts, and Data of 

, a new standard for agent-to-agent transactions in the AI ecosystem. Developed in collaboration with leading AI agent frameworks, this protocol enables AI agents to autonomously exchange and monetize intellectual property (IP) without human intervention. Agent TCP/IP allows AI agents to execute legally binding contracts, create a decentralized IP marketplace, and share revenue. The protocol aims to unlock the full potential of AI agents by enabling secure, transparent, and frictionless IP exchanges. A demo showcases how agents can license their IP in a decentralized marketplace.

Yesterday, BTC Spot ETF data showed a total outflow of $673.9 million, including $87.9 million from GBTC and $586.0 million from non-GBTC sources.

WorldShards, a Sandbox MMORPG on the Open Loot platform, is 

 a complete in-game economy in December 2024, ahead of its Token Generation Event (TGE) in early 2025. Key updates include Proxy Tokens for NFT crafting, 30-day free trial access, and airdrops for all active players based on activity. The game has attracted 300,000 community members and achieved $4M in sales since early access in February 2024.

Beginner

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Story Unveils Agent TCP/IP as a Breakthrough Protocol for Autonomous AI Agent IP Transactions

Lumia (LUMIA) revolutionizes RWA tokenization with DeFi liquidity, MEV protection, and zk-rollup technology.

Real-world assets (RWAs) are quickly becoming a leading topic within the blockchain ecosystem, with many protocols and chains starting to offer asset tokenization services. However, many of these solutions are based on simply moving a variety of physical and digital assets to a 

 environment without regard for how these tokenized on-chain products will be further utilized. As a result, after companies tokenize their assets on-chain, they realize that the lack of liquidity is hampering the assets' further circulation and adoption.

 project that has taken a much more comprehensive approach to asset tokenization. The platform allows businesses to tokenize various RWAs, including a diverse range of commodities, and provides ways to boost their liquidity and applications within the 

 (DeFi) realm. Based on Polygon's modular 

 (Polygon CDK), Lumia provides a robust, secure, compliant, cost-effective and scalable infrastructure to put RWAs to active use within the world of web3.

Having started its operations under the name of 

 (ORN) as an Ethereum (ETH)-–based app that aggregated liquidity from various 

 (DEX) exchanges, the project rebranded to Lumia in 2023 and expanded its functionality to focus on the RWA niche. As of late 2024, Lumia remains one of the pioneers of liquidity-enhanced RWA use on blockchain.

 (LUMIA) is a Layer 2 blockchain designed for tokenization and use of RWAs in DeFi applications. 

The platform allows businesses to bring a variety of physical and digital assets 

, securely tokenize them and further use the assets for collateral provision, lending and other crypto finance use cases.

The Lumia platform's origins date back to 2020, when Orion Protocol (ORN) was launched on Ethereum. Co-founded by Alexey Koloskov and Kal Ali, Orion offered liquidity aggregation from multiple CEX and DEX platforms. In late 2023, Orion announced its rebranding to Lumia, focusing more specifically on RWAs and their active use through enhanced liquidity provision.

The project also transitioned from Ethereum to its own Layer 2 chain in October 2024, with ORN tokens to be migrated to the new platform's native token, LUMIA, at a 1:1 ratio. As of December 2024, the major crypto exchange platforms have migrated ORN to LUMIA or are in the process of migrating it.

 (ZKP)–based rollup network built using thePolygon CDK, a versatile, open-source blockchain development framework provided by the 

 project. The Lumia platform is highly modular, with different components used for its execution, data availability (DA) and settlement layers.

Chain Abstraction and Account Abstraction

 to offer chain abstraction (CA), and with thirdweb to offer account abstraction (AA) services. Lumia's CA service is designed to provide DeFi users with a single-chain experience by accessing liquidity and opportunities across multiple blockchain networks. Meanwhile, AA allows users to transact across multiple platforms on a single, user-friendly interface. By leveraging 

–based addresses instead of the standard externally-owned account (EOA) addresses, users can seamlessly transact across platforms using a single wallet tied to these smart contracts.

By providing a unified, user-friendly interface, Lumia's AA lets Web 2.0 users enter the world of web3-based DeFi with a minimal learning curve involved. AA’s additional benefits include enhanced security at the smart contract level and gasless, Lumia-sponsored transactions.

Lumia users can also take advantage of intent-based trading, meaning they specify their transaction intents, and orders only execute if a matching deal is found across the entire ecosystem accessible to Lumia. Special liquidity nodes process intent-based orders and offer the best rates they can source for the user’s intent. This helps ensure that Lumia users get the best possible deals.

This advanced trading mechanism is powered by 

, which introduces various unique advantages to enhance the user experience. For instance, it provides robust security against 

 (MEV) attacks, one of the most common exploits in the world of DeFi. It also optimizes price efficiency and minimizes the negative price impact of trades by leveraging its Resolvers to source liquidity across the entire DeFi market.

Built using the Polygon CDK, Lumia is a ZK–based rollup running on a 

 processing engine. Based on a highly modular design, the Polygon CDK allows rollups to easily incorporate different execution, DA and settlement layers and other associated technologies. Lumia, for instance, integrates various execution engines, such as the privacy-focused Privado ID and Miden. Privado ID allows Lumia to securely and privately identify users. Based on zk technology, Privado ID enables individuals and businesses to control their personal data by sharing only the required identity information to DApps without revealing any private or financially sensitive details.

In turn, Miden is also a ZK–based platform that offers private accounts and transaction execution. Operating as a rollup network, Miden is a highly scalable environment for DeFi operators and users who value data confidentiality, an essential consideration for any finance-focused platform.

 with other blockchain environments, achieved by leveraging two modular interoperability layers: AggLayer and Hyperlane.

AggLayer is Lumia's primary interoperability layer. Built into the Polygon CDK, AggLayer offers cross-chain transaction capacity across various Polygon-based Layer 2 rollup networks. It unifies liquidity across the entire ecosystem of AggLayer-connected chains, allowing Lumia to provide deep liquidity for tokenized assets.

Hyperlane, the other interoperability protocol used by Lumia, is a solution designed to help developers easily and efficiently send arbitrary data across chains. It expands Lumia's reach beyond Polygon's ecosystem. Theoretically, it may allow Lumia to access resources and liquidity across the entire ecosystem of chains that have adopted Hyperlane. As of late 2024, there are dozens of such Hyperlane-powered blockchains outside of the Polygon environment.

Lumia provides a streamlined process for RWA tokenization. As the first step, the asset owner needs to provide proof of ownership documentation and undergo any other required due diligence procedures. Following that, a Bailment Agreement is signed between the asset owner and the Lumia Foundation, the legal entity behind the project.

Within the contexts of blockchain technology and RWAs, Bailment Agreements are utilized to entrust physical assets to an authorized custodian, while the actual tokenized representations of these assets are held and used within the blockchain space.

After the parties sign a Bailment Agreement, the asset is appraised by third-party valuators and then tokenized on-chain. The tokenized version of the asset can now be used in DeFi applications accessible via Lumia for typical crypto finance operations, e.g., collateral provision, lending, borrowing, staking, yield management and more.

 protocol, sources liquidity from multiple exchange platforms. (This is the core service from which Lumia started its operations when it was known as Orion Protocol.) It accesses liquidity across the crypto market to provide Lumia-based RWAs with much more than tokenized on-chain representation. Besides access to liquidity, Lumia Stream features MEV protection for all trades conducted on the platform, and 

, which allow tokenized assets to be bridged across blockchain platforms.

Using Lumia Stream, developers can also implement virtual 

, which show optimal trading paths between multiple exchanges. These virtual order books can also transform pricing information from the structure used in 

 (AMM) pools to a format compatible with the standard order book model.

Lumia has several specialized node types, including DNLP (Delta Neutral Liquidity Provisioning) nodes and DAC (Data Availability Committee) nodes. The former are designed for decentralized liquidity provision on the network, while the latter play a key role in data validation.

There are also HyperNodes that can be used either to provide the licenses for the operation rights of virtual Lumia machines or supply the licenses used to delegate to DNLP and DAC node operators. HyperNodes can choose to run a DNLP or DAC node or delegate to these node types and earn ecosystem rewards. 

Lumia first made HyperNode licenses available for purchase in July 2024. The license releases and the associated rollout of HyperNodes will be gradual.

The platform uses a network of zkProvers that are responsible for the generation of validity proofs — cryptographic stamps that certify the validity of transaction blocks. Currently, Lumia utilizes the default zkProver infrastructure provided by the Polygon CDK. However, the project has plans to introduce a custom prover layer in partnership with 

, a provider of low-cost and highly scalable ZK validation services. Per the project's documentation, there will be further announcements on integrating a Gevolut-based zkProver system in Q1 2025.

Lumia's early 2025 plans also include creating a decentralized sequencer network (DCN). Sequencers are critical parts of any rollup system. These nodes organize transactions into blocks for further validation. A typical rollup network uses only one sequencer, an issue often cited as one of the key vulnerabilities of rollups.

Lumia aims to introduce a decentralized network of multiple sequencer nodes tailored to the Lumia platform to optimize its security and performance. The project plans to provide incentives in the form of LUMIA tokens to sequencer service providers in order to build its DCN.

We’ve already mentioned some of the specialized node types on Lumia — DNLP, DAC and HyperNodes. Another crucial node variety on the platform is DA (lightclient) nodes. They play a pivotal role in decentralized data availability by ensuring transaction data is securely stored and easily accessible across the Lumia network. Transaction data on Lumia is distributed and stored across the network of DA nodes to provide validators with easy retrieval when data is required.

Data on the DA node network is stored in a secure, cryptographically protected format. Both the encryption and the distributed storage mode ensure confidentiality and high security for Lumia's transaction data.

DA nodes are incentivized with LUMIA tokens, based on their contributions to the network. Node operators are encouraged to actively participate, as the rewards are determined by both the amount of data processing they handle and their network uptime.

The platform's native cryptocurrency, LUMIA, is used for a wide variety of functions:

The LUMIA token was launched in mid-October 2024, replacing the earlier ORN token, the platform's native crypto. ORN was introduced in July 2020, along with the launch of Orion Protocol. As mentioned above, the platform has announced the migration of ORN to LUMIA at a rate of 1:1. As of December 2024, ORN tokens are still in circulation, but are expected to eventually be migrated to LUMIA completely.

LUMIA is a supply-capped token, with a total and maximum supply of 238,888,888.

 as a Perpetual contract based on USDT. Under the terms of the contract, you can trade LUMIA with up to 12.5x leverage.

Bybit's Innovation Zone offers perpetual trading users access to promising new higher-risk/higher-potential cryptocurrencies selected by the platform's professional team.

As of Dec 19, 2024, the LUMIA token is trading at $1.61, or 36.2% lower than its ATH of $2.49 on Dec 4, 2024, and 72.8% higher than its ATL of $0.9205 on Nov 4, 2024.

Long-term price forecasts for LUMIA are bullish. DigitalCoinPrice 

 at $4.19 in 2025 and $12.06 in 2030, while CoinCodex 

 that the token will trade at $7.50 in 2025 and fall slightly to $6.53 in 2030.

Lumia isn't your ordinary RWA-based blockchain project. While countless new platforms help users tokenize physical world assets, very few offer viable ways of further using the tokenized crypto assets within the DeFi ecosystem. Recognizing the gap, the Lumia project team has decisively taken on the task of making RWAs a highly liquid and actively used form of cryptocurrency.

The project also features a solid infrastructural backbone, supported by the Polygon CDK and its high architectural modularity. Using technologies like Miden, Privado ID, AggLayer and Hyperlane adds to the security and interoperability of the Lumia platform. At the same time, Lumia isn't done yet with sculpting its architecture into a piece of blockchain art — in 2025, the project plans to implement a decentralized sequencer network and partner with Gevolut to provide an efficient zkProver layer.

As Lumia builds up its architecture, tokenizing and 

 will undoubtedly become even more efficient, convenient and secure — and decisively more DeFi-esque.

Advanced

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Lumia (LUMIA): Bridging RWA & DeFi for a New Financial Era

SynFutures is a decentralized platform that lets users list on-chain perpetual futures for any crypto and trade them. Learn about SynFutures and how to trade F on Bybit.

SynFutures is a decentralized marketplace that lets users list on-chain perpetual futures for any cryptocurrency and trade them on the platform. In addition to the wide range of supported assets (such as 

, or RWAs, and NFTs), the project's Oyster 

 (AMM) solution enhances liquidity through the combination of an AMM model and an 

. Powered by the native F token, SynFutures is backed by prominent investors and features a cumulative trading volume of over $230 billion.

In this article, we’ll explore SynFutures, its key features and the mechanics behind the Oyster AMM, as well as the F token and its tokenomics.

 is a decentralized derivatives platform that enables users to trade on-chain 

. Powered by a single-token liquidity model, SynFutures allows free listing of any digital asset on its protocol without any 

 (DAO) proposals or centralized intervention. Doing so fosters on-chain trading of a diverse range of cryptocurrency perpetuals via the platform.

To maximize liquidity, SynFutures employs the Oyster automated market maker

 that provides a customizable set of tools, such as concentrated liquidity and 

. In addition to crypto, the project also enables users to trade perpetual contracts based on 

 platform. As the native coin of the SynFutures ecosystem, the F token is utilized primarily for community governance and 

 boosts, as well as for fee discounts and rewards.

At the time of this writing (Dec 19, 2024), SynFutures boasts a cumulative trading volume of

 and 308,900 total users, of which 22,410 were active within the past seven days. In addition to featuring a 

 (TVL) of over $50 million, the decentralized derivatives platform has processed 15.24 million transactions to date.

SynFutures was founded in 2020 by Rachel Lin and Matthew Liu.Before serving as the CEO and co-founder of the decentralized futures platform, Lin worked at Deutsche Bank, specializing in derivatives. She also co-founded Matrixport, one of Asia's largest digital asset neobanks.

Starting his career as a trader managing Deutsche Bank's Asia rates desk, Matthew Liu's MBA at Northwestern eventually led to him joining the blockchain space. While at Ant Group, he was instrumental in setting up the company's global treasury and later took charge of its financial blockchain business, with a focus on secondary market trading and credit tokenization.

To date, SynFutures has raised $37.4 million in funding from investors in one seed and two early-stage financing rounds. Some of the most notable contributors include Bybit, Pantera Capital, Polychain Capital, Dragonfly Capital, HashKey Capital and Standard Crypto, among others.

SynFutures' ecosystem consists of three flagship solutions:

SynFutures' Oyster AMM: How Does it Work?

One of the most unique components of SynFutures' ecosystem is the 

. It combines the functionality of order books and AMMs to offer users the following key features:

SynFutures' F token serves as the native coin within the project's ecosystem. The main utilities of the digital asset include the following:

F's max supply is capped at 10 billion tokens. Currently, 1.2 billion F are circulating in the market. As of Dec 16, 2024, the native coin 

 a nearly $86.5 million market cap, a fully diluted valuation (FDV) of $720 million and a trading volume of $28.52 million over the past 24 hours. F’s allocation is per the graphic below:

SynFutures’ decentralized derivatives platform enables users to list and trade any digital asset and combine it with other cryptocurrencies to create combinations of perpetual futures pairs. Powered by the F native token and the Oyster AMM, SynFutures fosters enhanced liquidity and user experience and a permissionless listing process for perpetuals.

's user-friendly and intuitive Spot trading platform. 

SynFutures.png

SynFutures (F): Exploring the Decentralized Derivatives Platform

Bybit Learn

Options

Implied volatility (IV) is a metric that’s utilized to predict what the market is expecting from an underlying asset’s future price movement. Read more here.

Correctly anticipating the future value of an asset plays a significant role in both the profitability of an investment and in 

. For many types of investments, such as stocks and real estate, various factors can be reviewed, analyzed and monitored to project what the future value may be. The historical volatility, or realized volatility, of the crypto market has largely been rooted in speculation. Because of this, analysis of implied volatility can be useful in optimizing gains and minimizing the risk associated with 

Implied volatility (IV) is a metric that’s utilized to predict what the market is expecting from an underlying asset’s future price movement. While it cannot exactly predict price movement, it can provide a strong indication of what may happen in financial markets.

The crypto market is well-known for its extreme historical volatility, which has presented investors with incredible opportunities for financial gain. However, this potential gain is based on predicting whether the market price will go up or down and how far the price may swing. Because of the strong element of speculation that drives crypto price volatility, the risk of loss is also substantial. Implied volatility is a means of assessing price fluctuations while taking market risk into account. A decline in implied volatility typically occurs when the market is 

. An increase in implied volatility, on the other hand, occurs when the market turns 

Because implied volatility anticipates trading volume and market sentiment, it’s used for options trading rather than for traditional buy and sell orders. In the cryptocurrency market, the cryptocurrency volatility index, or CVI, is comparable to the 

, a 30-day projection of the overall market used in stock market trading.

When calculating implied volatility, you can gauge market risk and determine fair options pricing using the 

. You can also determine if the projected future volatility level is higher or lower than the realized volatility, and gain a deeper understanding of sentiment for that asset in the financial markets. 

High implied volatility usually means that market conditions are changing rapidly. This may be associated with sharp price dips and peaks. Lower implied volatility is often associated with less extreme dips and peaks. Implied volatility is used to gauge market sentiment so that an investor may better anticipate the profit potential for a specific crypto options contract.

How Is Implied Volatility (IV) Calculated?

Anticipating the price movement of an underlying asset is essential for risk management. To calculate IV, you use several key factors: The options trading price, the cryptocurrency’s price, the 

 and the option contract expiration date. Without knowing all of these factors, calculating implied volatility isn’t possible.

Calculating IV requires you to input these data points into an options pricing model. One such options pricing model that’s commonly used is Black-Scholes. Notably, this method can also be used to calculate the other factors in the equation if the implied volatility is known. The development of the Black-Scholes method several decades ago directly contributed to the rise in popularity of options trading.

In order to determine if the implied volatility for a specific asset is higher or lower than average, we use implied volatility rank, which looks at the implied volatility for a specific asset over the last 12 months in comparison to its current IV. An implied volatility rank 

 the current implied volatility is on par with the 12-month average.

How Does Implied Volatility Affect Crypto Options?

With options trading, investors predict whether an option's price will increase or decrease over a predetermined period of time. Compared to traditional buy and sell orders, options trading is generally less risky. The options premium is tied to both the time value and to the intrinsic value, which represents the equity in the option. 

 is $20 and the option's price is $30. You have the option to purchase at the strike price of $20 and can turn a $10 profit by immediately selling at $30. High implied future volatility is generally associated with a higher options premium. 

 value of a crypto asset is rooted in factors other than the market price. For instance, the time remaining until the expiration can drive extrinsic value. Generally, the extrinsic value increases when a market is more volatile.

Implied volatility can be used to anticipate how wide the market value movement of a crypto asset may be, and to better estimate the most strategic times for buying and selling. Higher implied volatility indicates the potential for higher options prices. As a result, an investor may pay a premium to buy a new option contract for that asset. On the other hand, when implied volatility decreases, lower options pricing may follow. Declining implied volatility means that demand for that asset is waning. 

When using implied volatility for options trading, be aware that 

 options or options with longer expiration times are typically more price sensitive. Higher price sensitivity means that the strike price is more likely to be on par with market value.

Why Is Implied Volatility Important to Crypto Traders?

Because of the crypto market’s extreme price volatility, the ability to time the market directly affects gains and losses. More than that, it affects the significance of those gains and losses. If you place your trade too early or too late, you could miss out on an otherwise lucrative opportunity, or could even lose money. 

As is the case with other types of assets, it’s impossible to know how the crypto market will move. However, IV gives you a much better idea of the expected movement over a specific period of time. It helps you know when to make a purchase, and what the risk may be.

While implied volatility is important to crypto traders, using it in the crypto market is more complex than using it in other financial markets. This is because there may be missing quotes, low trading volumes and other factors that could skew the results. Generally, ETH and BTC are the only assets with a well-developed options market that’s suitable for implied volatility.

Pros and Cons of Using Implied Volatility

Implied volatility can’t provide you with perfectly accurate market predictions, but it can help you make a highly educated guess based on multiple data points. As a result, it offers exceptional benefits for crypto options trading. However, there are a few downsides to be aware of as well.

Implied volatility is a predictor of market sentiment. When the financial market is bearish, IV typically declines. On the other hand, if a market is turning bullish, IV may be higher, and swings will typically be wider, even over a shorter period of time.

Pro: Strategize Your Entry Point and Investment Period

Crypto options trading lets you arrange a buy or sell order in advance at a predetermined price and time. A call option gives you the right to buy the asset, and a put option the right to sell. However, there’s no 

 to exercise the right to buy. Success with options trading is strongly based on your timing of buy and sell orders. Implied volatility provides an indication of sentiment for a specific period of time, which enables you to better strategize the timing for your buy and sell orders.

Con: Cannot Predict a Price’s Upward or Downward Movement

During a bull market, crypto prices tend to rise overall. But there are often extreme price fluctuations, and even in a bull market, where implied volatility is high, it’s possible for the market to swing in either direction. While IV can closely predict market sentiment for a given period of time, it cannot determine whether an underlying asset’s price will increase or decrease during that period.

Con: Various Other Factors Also Have an Impact on Prices

While the crypto market is strongly driven by speculation, there are many factors that drive price movement other than the key data points used to calculate implied volatility. For example, the regulation of cryptocurrencies in one country can have a huge impact on prices and volatility throughout the market. Other factors can drive options prices as well, such as social media hype and 

How to Use Implied Volatility in Crypto Options Trading

Implied volatility can be used to analyze different expiration times. By assessing the trend of different IV measures you can better understand future risk. For example, the 

, shows an overall inverted structure. This indicates increasing risk in the market.

You can also compare the IV for two different crypto assets over the same period of time. For example, a look at the at-the-money IV for both ETH and BTC over the same time period mentioned above reveals that the volatility spread between these assets was roughly 23%.

What Is Implied Volatility in Crypto Options Trading?

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