GSR, an algorithmic crypto trading company based in Hong Kong, launches cryptocurrency variance swaps. This product is used to hedge against volatility. The development was revealed by the company in a press release published on April 24.
As per the announcement, the variance swaps will allow investors, traders, businesses and other crypto portfolio holders to hedge against crypto volatility. According to Investopedia, the financial swap is a financial derivative that is used to speculate on the volatility of an asset.
GSR claims that the bitcoin and ether variance swaps (BTC/ETH) are the best way to expose yourself to volatility in the underlying assets. These contracts can be based on either annualized variance or annualized volatilty squared.
This derivative allows the user to trade the difference in value between the amount set up upfront and the variance realized over the course of the swap. Vanilla options (puts or calls) can be used to achieve a similar effect, but they require more work as they need to be actively managed and periodically balanced in order to hedge.
Further, the release claims that GSR managed to trade and manage billions of dollars of digital assets using their software.