Implied volatility is a number that itself moves around. Measure how much it moves and you have volatility of volatility — the same idea as VVIX in equities, applied to a crypto vol index.
What it adds
Stability of the regime. A market can sit at a high but steady implied volatility, which is a settled expectation of a lot of movement. Or it can sit at a moderate implied volatility that is lurching around, which is a market that has not made up its mind.
The second is the more dangerous condition and the level alone cannot see it. Vol-of-vol is what separates “expects a lot of movement” from “does not know what to expect”.
Why it matters for anyone short options
A premium seller is short vega. If implied volatility is stable, the position’s main risk is the underlying moving. If implied volatility is itself unstable, the position can lose substantially without spot doing much at all — a vega loss on a repricing rather than a delta loss on a move.
That is the failure mode described in straddles and strangles from the buyer’s side, seen from the other end: being right about direction and wrong about vol.
The crypto reading
Vol-of-vol is structurally higher here than in equity indices, because the underlying regime shifts faster and the options market is thinner — a smaller book reprices more readily on less flow, which is the thin book problem showing up in a second place.
Which means an equity-calibrated intuition for what constitutes elevated vol-of-vol will read crypto as permanently alarmed. As with skew, it has to be ranked against its own history rather than an imported baseline.
Where it fits
Third in a sequence. Realised says what happened, implied says what is expected, vol-of-vol says how firmly that expectation is held. Each one qualifies the one before it, and the third is the one most often left out.