Options exchanges live and die on the quality of their pricing. Kyan, a next-generation onchain derivatives venue, has engineered a pricing stack that routes Block Scholes IV data through an SVI-calibrated Black-Scholes engine to produce a complete, consistently arbitrage-free implied volatility surface — in real time.
The result is a system where volatility is not treated as a single number, but as a continuously evolving surface derived from market conditions.
The Problem With Flat Volatility
The Black-Scholes model, introduced in 1973, gave derivatives markets a common language. Feed it a spot price, a strike, a time to expiry, a risk-free rate, and a single number for volatility, and it returns a theoretically fair price for an option. For decades, that was enough. Or close enough.
The problem is the last input. In the real world, volatility is not a single number. It is a surface. It varies by strike and expiry: options deep in or out of the money tend to imply higher volatility than at-the-money contracts (a phenomenon known as the volatility smile).
Volatility Smile
Near-dated options often carry different volatility expectations than longer-dated ones, producing a term structure.
BTC Implied Volatility Term Structure
When you combine both dimensions, you get the implied volatility (IV) surface: a three-dimensional map of market expectations across every strike and maturity for a given underlying asset.
Implied Volatility Surface
Any exchange that forces a flat assumption — one IV for all strikes and expiries — is mispricing its options. It is mispricing them systematically, in ways that sophisticated traders will immediately identify and exploit. The result is adverse selection: the exchange gets picked off, its liquidity providers bleed, and the venue's health deteriorates.
This is not a theoretical concern. It is the central infrastructure challenge for any onchain options exchange. An exchange that cannot construct a realistic IV surface is not pricing options, but making guesses and letting the market arbitrage the difference.
If you want to dive deeper into implied volatility and volatility surfaces, read further in Block Scholes' Implied Volatility Primer.
What Block Scholes Provides
Block Scholes is a derivatives intelligence platform that supplies institutional-grade IV data to exchanges, funds, and DeFi protocols. It aggregates real-time data from over 30 trading venues, applies a proprietary calibration methodology, and publishes IV surfaces for BTC, ETH, a growing range of altcoin options markets, as well as real world assets, such as gold, oil and equities, in a form suitable for onchain pricing.
Learn more about Block Scholes here.
The core of that methodology is the Stochastic Volatility Inspired (SVI) model. Rather than publishing a grid of implied volatilities for each strike and expiry pair (an approach that would require thousands of data points to keep current) Block Scholes publishes the parameters that generate the surface. Five numbers per expiry, updated continuously, are sufficient to reconstruct IV for any strike or time to expiry that matters.
This is a meaningful design choice. For protocols like Kyan in particular, compressing the volatility surface into a handful of parameters delivers real efficiency gains: five numbers per expiry, rather than a full grid of individual IV quotes that would need to be maintained and distributed across services for every strike and maturity. For traders, this translates directly to faster execution and more accurate position marking.
Learn more about SVI-calibrated volatility surfaces from the Block Scholes Resource Centre.
The SVI Parameterization
The SVI model, developed by Jim Gatheral, describes the shape of the implied variance curve (the volatility smile for a given expiry) as a function of log-moneyness. In Kyan's implementation, Block Scholes delivers the following parameters:
SVI Parameters
Together, these five parameters produce the total implied variance for any given log-moneyness k — the natural log of the ratio of the strike price to the forward price. The IV for that strike and expiry is then simply the square root of that total variance, divided by the square root of time. That number flows directly into the Black-Scholes pricing formula.
w(k) = a + b × (ρ(k − m) + √((k − m)² + σ²))where w(k) is total implied variance at log-moneyness k
IV(k, T) = √(w(k) / T)implied volatility at strike k, expiry T (derived per option from the instrument’s expiry timestamp)
How Kyan Assembles the Surface
Kyan's pricing stack assigns each data source a distinct role. Chainlink supplies the spot reference for all supported markets — used both as the basis for perpetual risk management (margin, liquidation thresholds, funding) and as the underlying price input to the Black-Scholes engine for option pricing. Block Scholes supplies the volatility layer: for each listed expiry, the protocol receives the current set of SVI parameters. The IV surface builder takes those parameters and, for any given strike and maturity, generates the corresponding IV using the SVI formula.
Those two inputs (Chainlink's spot price and the Block Scholes IV for the relevant strike and expiry) along with the strike, time to expiry, and risk-free rate, are what the Black-Scholes engine consumes to produce a mark price for each option. All of this runs offchain, with SVI parameters evaluated per-request rather than stored as a pre-computed grid.
Options Pricing Diagram
The result is that Kyan can produce a fair mark price for any option in its listed universe (at any strike and expiry), from a small set of continuously updated parameters. The surface is always coherent, always smooth, and always current.
Arbitrage Consistency
A correctly parameterised SVI surface is guaranteed to be free of static arbitrage across strikes, meaning no combination of options at different strikes within the same expiry can generate a risk-free profit purely from mispricing. This is a crucial property. The SVI parameterization is specifically designed to do so, provided the parameters satisfy certain shape constraints. Block Scholes' calibration methodology enforces these constraints as part of its fitting process.
Why This Matters for an Exchange
The IV surface is not merely an input to pricing. It is the foundation on which every critical function of an options exchange is built.
Mark Prices
Options must be marked to market continuously. The mark price determines unrealized profit and loss for every open position. If the mark price doesn’t reflect where the market would actually clear a trade, then PnL calculations are wrong, margin balances are wrong, and the entire account system is operating on fiction. An exchange whose mark prices drift from reality will misprice risk, which will ultimately lead to a loss that falls on the healthiest participants.
Margin and Collateral
Option positions are non-linearly sensitive to the underlying. A short call that is far out of the money today may be deep in the money by expiry. Correctly sizing the margin requirement demands a real-time view of an option's fair value under a range of scenarios, which demands a reliable IV surface. Under-margined positions are a direct threat to solvency. Overly conservative margin requirements suppress capital efficiency and make a venue uncompetitive.
Liquidations
When a position crosses a liquidation threshold, it must be unwound quickly and at a price the market will accept. For options, that unwinding price is a function of the current IV. If the IV embedded in the liquidation price is stale or inaccurate, the protocol either fails to recover sufficient collateral, eating a loss, or liquidates positions at unfair prices. Block Scholes provides a continuously updated feed designed for institutional auditability.
Maker Incentives and Spread Quality
Market makers on options venues quote around a theoretical fair value. If the exchange's fair value diverges from the broader market's consensus, sophisticated market makers will skew their quotes to protect themselves, widening spreads and reducing liquidity depth. Tight, liquid markets are only possible when makers trust the pricing reference. An IV surface derived from cross-exchange, exchange-weighted data from Block Scholes provides exactly that: a consensus view that no single venue's quirks can distort.
A Complete Picture
Kyan's pricing infrastructure shows what it takes to run a credible onchain derivatives exchange in 2026. Chainlink supplies the spot reference that runs through the entire system. Block Scholes supplies the volatility layer that turns that spot price into fair values across every strike and expiry. Both feeds operate on different dimensions of the same pricing problem, and the output of both flows into the same engine that produces marks, Greeks, margin requirements, and liquidation thresholds.
For traders on Kyan, the practical implication is mark prices that track the real market, margin requirements sized to the actual risk of a position, and liquidation mechanics that behave as designed even in volatile conditions. For the protocol itself, it means the IV surface that underlies every quote and every margin calculation is consistent, arbitrage-free, and continuously updated by a provider whose data currently powers the majority of onchain options trading volume globally.
What Does Kyan Mean for Crypto Options?
Kyan is a significant upgrade for anyone trading decentralized derivatives.
