Hong Kong-based algorithmic crypto trading firm GSR launched cryptocurrency variance swaps, a product for hedging against volatility. The company announced the development in a press release published on April 24.
Per the announcement, the variance swaps will allow investors, traders, businesses and other crypto portfolio holders to hedge against crypto volatility. According to Investopedia, a financial swap is a financial derivative used to speculate on the volatility of an asset.
The launch announcement of bitcoin (BTC) and ether (ETH) variance swaps claims that the derivative is the easiest way to get exposure to the volatility of the underlying assets. The contracts are on annualized variance or annualized volatility squared.
The derivative allows users to trade the difference between a value set upfront and the variance realized during the duration of the swap. The company explains that ways to obtain a similar effect through the use of vanilla options (puts and calls) exist, but they are much more labor intensive since they need to be actively managed and periodically rebalanced in order to hedge.
Lastly, the release claims that GSR successfully traded and managed billions of dollars worth of digital assets through their software.