GSR, a Hong Kong-based algorithmic crypto trading firm launches cryptocurrency variance swaps, a product for hedging 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 (BTC) and ether (ETH) variance swaps are the easiest way to get exposure to the volatility of the underlying assets. The contracts are on annualized variance or annualized volatility squared.
The said derivative will allow the user to trade the difference between a value set up front and the variance realized during the duration of the swap. It was further elaborated that vanilla options (puts and calls) to obtain a similar effect is available, however, they are much more labor intensive as it needs an actively managed and periodically rebalanced in order to hedge.
The release further claims that GSR successfully traded and managed billions of dollars worth of digital assets through their software.