Opening

Two people take opposite views of the same week. One offers a strike, the other accepts it, and the pair becomes a contract on a single market with a fixed expiry. Neither side borrows anything.

Both escrow the same amount at open: size multiplied by the band, in USDG. That deposit is the entire exposure. Nothing accrues against the position while it runs and nobody has to watch a margin ratio, because every dollar the contract could owe is already inside it.

Marking the pool

Once an hour, anyone can poke the contract to record the price of the market's Uniswap v4 pool. The poke is permissionless and cheap, and it writes at most one mark per hour, so calling it forty times in a minute does nothing except waste gas.

Two rules keep the series clean:

• A pool below the depth floor is not marked. Its previous mark carries forward, which contributes a return of zero rather than a fabricated one.
• A missed hour carries forward the same way. The count of observed returns travels with the series, so the annualisation divides by what was actually seen.

Carrying a mark forward is deliberately biased against the long side. An hour nobody bothered to record cannot manufacture volatility for the person who wanted it.

Realized volatility

Take the log return between consecutive marks, square it, average, annualise, and take the root. Squaring is the step that removes direction: a fall of two percent and a rise of two percent are the same input.

// n observed hourly returns over the term
rᵢ = ln( Pᵢ / Pᵢ₋₁ )

RV = sqrt( 8760 / n · Σ rᵢ² ) · 100      // vol points

The mean return is not subtracted. Dropping it is the standard convention for variance products and it is the reason a stock that grinds steadily upward all week still settles at a low volatility: what counts is how jagged the path was, not where it ended.

Vol points are annualised percentages. Divide by the square root of 365 to read one as an average day: 52 points is a typical day of about 2.7%.

Settlement

At expiry the contract computes RV from its own marks and moves one payment.

payoff = N · clamp( RV − K, −W, +W )     // short pays long when positive

Then both escrows are released, adjusted by that transfer. The contract holds 2 · N · W and pays out 2 · N · W, so the books close to the cent whatever the market did.

Why a band

Volatility has no ceiling. An uncapped long-vol position against an uncapped short is a promise the short side cannot always keep, and enforcing that promise means margin, liquidations, and a keeper that has to win a race during exactly the week when everything is moving.

The band replaces all of it. Past the cap the payoff stops, and since both sides put that cap in escrow before signing, nobody has to be chased for money afterwards. You pay for that with the tail: a genuinely violent week pays the cap and stops there.

Pushing the price

The obvious attack is to shove the pool right before a mark. It works badly here.

• Shoving the price costs slippage, and the pool's depth floor means the position needed to move a mark is not small.
• A push and its unwind are two large returns in the series, both squared, both raising RV. An attacker who wants a low settlement raises the very number they are trying to suppress.
• Marks are hourly and the term holds hundreds of them. One tampered hour is one term in a sum of hundreds, which is not enough to buy the outcome.

None of this makes a thin market safe. It does make moving one expensive and obvious, and that is as far as the claim goes.

What can go wrong

• The pool is the price. If a market's liquidity leaves, its marks stop being meaningful. Tynex only lists names with real depth, and a listing is not a promise the depth stays.
• You need a counterparty. Every position is somebody else's opposite position. A strike nobody wants is a strike that does not trade.
• The cap cuts both ways. The week you were most right about is the week you are most likely to be capped.
• Quiet is not safe. Short volatility loses money in exactly the conditions where everyone wants out at once, and the loss arrives all at the end rather than a little at a time.
• Unaudited, and new. The contract is on mainnet and its tests pass, which is not the same as an audit and nowhere near a track record. Nobody has settled a term on it yet.