Your Guide to Navigating PunchVIX

PunchVIX is a new protocol launched natively inside PunchSwap that allows users to farm and trade the volatility of assets on Flow EVM.

Introduction & Mechanism Explainer

At it’s core, PunchVIX introduces a parallel pool system to traditional V2/V3 spot trading on PunchSwap, where users are able to ‘bond’ or ‘wrap’ index assets into a vixTKN counterpart. This vixTKN, which is valued at or near 1:1, is pooled on the same V2 trading environment as the index spot asset.

With this parallel pool system, the TKN and vixTKN should maintain a price parity. When the spot (index) pool changes price rapidly, the volatility pool should react in a similar way to maintain the ratio. This reaction is driven by arbitrage traders and bots, who see opportunity in capturing value that emerges from the delta between the two pools.

This can be done in a few different ways:

If the value of the vixTKN is lower than the TKN
- A user could take the opportunity to purchase the vixTKN off the open market until the price rises to the current TKN price.
- The user then would take the newly acquired vixTKN to the PunchVIX protocol, find the relevant market, and select the “unbond” option in the action modal.
- Unbonding works to burn the vixTKN and release the equal amount of TKN to the user. Given that the user essentially purchased TKN as a discount to market rate, they can now sell the TKN on the open market take advantage of the % discrepancy.
If the value of the vixTKN is higher than the TKN
- A user could take the opportunity to purchase off the open market and “bond” the TKN in the PunchVIX action modal for the relevant market to create vixTKN.
- Once in possession of vixTKN, they can then sell on the open market to reduce the price back down to parity with the TKN pool.

Of course, all of the actions detailed come with PunchVIX fees that are distributed across the protocol to incentivize liquidity and drive this derivative market.

Fee System and Yield

80% of the fees generated by PunchVIX go back into the system for vixTKN holders and vixTKN LP earners, with a small leakage to the KittyPunch team. 20% is distributed back to the protocol layer and is used for FVIX (PunchSwap’s yield token) buybacks/burns + real yield distribution to FVIX stakers (coming soon).

Fee	Description	Default Fee
Bond	Fee charged when converting`TKNs`into`vixTKNs`within Markets.	0.69%
Unbond	Fee applied when converting`vixTKNs`back to`TKNs`from Markets.	1%
Purchase via PunchSwap V2	Fee incurred when buying`vixTKNs`directly from the liquidity pool.	1%
Sell via PunchSwap V2	Fee applied when selling`vixTKNs`back to the liquidity pool.	1%
Token Burn	Universal fee on all transactions above, resulting in permanent removal of`vixTKNs`from circulation.	1% (this can range up to 40% for some markets, as it is the ratio. Higher burn = less % to LPs).
KittyPunch Fee	Additional fee collected after the burn fee, distributed to the KittyPunch.	1%
Protocol Fee	Additional fee collected after the burn fee, allocated to FVIX.	20% total. Of which, 75% to buyback and burns of FVIX and 25% to real yield distribution to FVIX stakers.

As you can see, the fee system current skews towards incentivizing users to acquire TKNs and LP them to earn rewards. This aligns with our goal to build deep liquidity for these volatility markets, to enable efficient trading between markets, and in turn, generate high yields for participants.

Rewards for LPers are currently paid out in FVIX, which can be claimed freely and either used to stake when available or simply sell into the open market.

Step-by-Step Guide

A few notes upfront:

Every vixTKN pool outside of vixWFLOW is going to be paired with vixWFLOW for LPing. What this means is that the first step you need to do if you’re looking to farm volatility yield on any given PunchVIX market is to bond WFLOW for vixWFLOW, or purchase it off the open market.
vixTKN trading is only available using PunchSwap V2, it is disabled on our AggroKitty aggregation product due to the nature of the fee structure associated with PunchVIX tokens.
There will be instances where trades are blocked on PunchSwap V2, in cases where vixTKN-vixWFLOW token liquidity is very low or fees need to be claimed through a qualifying action within the direct PunchVIX protocol. If you receive this error, simply wait a little bit until things are cleared out.

Here are the steps to farm volatility yield with PunchVIX.