ETH2x-FLI Parameter Update #11

Simple Summary

Update Supply Cap for ETH2x-FLI, and update Max Trade Size Parameters to optimize rebalances to account for the higher supply cap.

ETH2x-FLI is currently at ~1,500,000+ units supplied, or 75% of 2,000,000 units available to mint as defined by ETH2x-FLI Parameter Update #10. In order to further grow the product safely, the Product Pod suggests updating the supply cap to 2,500,000.

Abstract

Adjust the following parameters for ETH2x-FLI:

  1. Raise the Supply Cap from 2,000,000 to 2,500,000.
  2. Max Trade Size for regular Rebalances on Uniswap V3 to 3000 ETH.
  3. Max Trade Size for Ripcord on Uniswap V3 to 4000 ETH.
  4. Switch to ETH:USDC 0.05% UniV3 pool for rebalancing.

Motivation

In order to enable the product to continue growing safely, the Product team plans to change several parameters for ETH2x-FLI.

The Supply Cap defines the total amount of tokens that can be minted. Gradually raising the Supply Cap allows the Product team to monitor the growth of the product and ensure that it is always operating within safe thresholds.

Selecting appropriate parameters requires optimizing for both safety and efficiency. We optimize for efficiency by targeting a maximum rebalance transaction cost of 1% (fees + price impact). In current liquidity conditions, this now enables us to set a Max Trade Size of 3,000 ETH on Uniswap V3, our main source of liquidity. This would be the updated MTS from 2,000 ETH MTS currently set based on ETH2x-FLI Parameter Update #10.

Based on this Max Trade Size of 3,000 ETH, we are able to select an appropriate Supply Cap and determine a delever speed that can be achieved during market turbulence. Additionally, we project a 30% price increase in order to future proof our projections. Based on these projections we suggest a new Supply Cap of 2,500,000 units. This will enable us to target a delever speed of 0.463 while optimizing for a maximum of 1% cost to transact.

Additionally, the new UniV3 ETH:USDC 0.05% fee Pool has attracted the majority of the trade volume on Uniswap V3 ($4.5B on 0.05% Pool vs $750M on 0.3%, 7day Volumes). Switching to the new 0.05% pool will help us save on 25 BPS in LP fee, making rebalances much more efficient and also help us track the target LR tightly. Below charts compare DEX 1% Price Depth on both the pools.


Context

As per IIP-45: Delegation of FLI Parameter Changes 2 3, management of FLI product parameters has been delegated to a small team of subject matter experts from DeFi Pulse, Set Labs, and the Index Coop community in order to enable more rapid, responsive changes to product parameters.

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