GSR, a digital asset trading and market-making firm, announced today it has completed the first-ever cryptocurrency variance swap transaction with BlockTower Capital, an institutional cryptocurrency investment firm.
A variance swap is a type of financial derivative product, common in traditional financial markets, that enables institutions and experienced traders to directly hedge against the volatility of a market or index, in this case, bitcoin.
GSR’s Variance Swap, introduced back in April, allows institutions, like BlockTower, a direct means to hedge volatility, effectively introducing more options for stabilizing returns of the end investor.
“Structured products have emerged as a direct result of extreme uncertainty in this rapidly growing space. It is natural for prudent CFOs to seek ways to isolate and mitigate unwanted risks on their balance sheets. Thankfully appropriate risk management tools are becoming more readily available. BlockTower is one of many highly sophisticated counterparties that GSR is working with, others include mining pools, lenders and exchanges. As the market evolves, more players have been wanting customizable protection against unwanted market swings.”
– Rich Rosenblum, CoFounder of GSR
Structured products and derivatives are commonly used in financial markets to mitigate extremes in risk and return. For example:
- Foreign exchange markets have a tendency towards low volatility, so their structured products are often developed to increase the volatility of returns.
- Commodities and now cryptocurrency markets experience high volatility, and most of the interest in structured products are from established corporate entities looking for risk management solutions.
The introduction of structured products to crypto aims to reduce undesirable risk, as is generally in the interest of institutional players or corporate entities. Similarly, the latest suite of structured products from GSR are engineered to reduce volatility and benefit the portfolio and business models of sophisticated counterparties in the cryptocurrency space by better defining and constraining their risk parameters.