IIP-104: Launch ETH2X-FLI (Polygon)

IIP: 104
Title: Launching ETH 2x Flexible Leverage Index (ETH2X-FLI) on Polygon
Status: Proposed
Author(s): Pulse Inc
Created: 11-Oct-2021

Simple Summary

Pulse Inc proposes that the Index Coop manages a new index that provides 2x leverage exposure to the performance of ETH, using the FLI strategy that was proposed in IIP-13.

In contrast to the existing ETH2X-FLI product, this index will be launched on the Polygon network.


ETH2X-FLI on Polygon is based on V0.1 of the FLI methodology that is also used for ETH2X-FLI and BTC2X-FLI on the Ethereum network.


Manually maintaining a leverage position requires continuous monitoring of the health of the position in order to avoid liquidation and incurs high gas fees when the position is frequently rebalanced.


Flexible Leverage Indices (FLIs) solve this problem by wrapping a collateralized debt position in a single token that can be bought and sold on an exchange and by socializing implementation costs. Furthermore, FLI’s unique index algorithm reduces rebalancing needs by an order of magnitude. Emergency deleveraging is possible during Black Swan events for additional safety.



At inception the following parameters are proposed for ETH2X-FLI on Polygon:

Asset and strategy parameters
Underlying Asset WETH
Borrow Asset USDC
DeFi Lending Protocol Aave Polygon
Target Leverage Ratio 2
Maximum Leverage Ratio 2.3
Minimum Leverage Ratio 1.7
Initial Supply Cap 250,000 tokens
Token value at inception USDC 100
Rebalance parameters
Rebalance Interval 4 hours
Recentering Speed 2.5%
Slippage Tolerance 2%
Ripcord parameters
Ripcord Leverage Ratio 2.5
Ripcord Slippage Tolerance 5%
Initial liquidity
DEX Sushiswap (Polygon)

In accordance with other FLI proposals, a complete list of parameters will be provided before DG 2.

Size of opportunity

We see a high chance of FLIs and strategies in general that require frequent trading to move to layer 2’s. Currently Polygon is the most advanced alternative to Ethereum with liquid lending protocols and exchanges. While we do anticipate getting new users that don’t use FLI products on Ethereum Mainnet for cost reasons, we also see users of the existing ETH2X-FLI product moving over to the Polygon product – especially more active traders. Hence, availability of this Polygon version is an important mitigation of the risk of losing FLI users for Index Coop and DeFi Pulse.

Market & Customer Research

Target Customer

  1. Traders who are taking short term bets on ETH price movement.
  2. ETH holders who use the minting of a FLI token as a USDC loan while keeping their long ETH exposure and who do not want to actively manage the rebalancing that is needed to maintain a healthy debt position.
  3. ETH holders that act as LPs in a ETH2X-FLI / ETH pool resulting in a 1.5x leveraged ETH position that also earns LP fees with limited impermanent loss.



Flexible Leverage Indices enable market participants to take on leverage while minimizing the transaction costs and risks associated with maintaining collateralized debt.


  • Borrow Rate — the cost to borrow the asset at the DeFi Lending Protocol over the most recent epoch.
  • Epoch Length — the time between rebalances.
  • Target Leverage Ratio (TLR) — the long term target for the value of the assets held by the index divided by the value of the debt held by the index.
  • Current Leverage Ratio (CLR) — the value of the asset currently held by the index divided by the current value of the debt held by the index.
  • Maximum Leverage Ratio (MAXLR) — the highest leverage ratio the index will ever have after a rebalance.
  • Minimum Leverage Ratio (MINLR) — the lowest leverage ratio the index will ever have after a rebalance.
  • Re-centering Speed (RS) — the rate at which the Current Leverage Ratio is adjusted each period to return to the Target Leverage Ratio, when the index is not being adjusted back to the Maximum Leverage Ratio or the Minimum Leverage Ratio.

Index Price:

FLIt = FLIt-1 * (1 + (Pricet / Pricet-1 – 1) * CLRt-1 – BorrowRatet * (CLRt-1 – 1))

Calculation of the new Current Lever Ratio for the period:

CLRt+1 = max(MINLR, min(MAXLR, CLRt * (1 – RS) + TLR * RS))


Cost to customer
Implicitly the customer earns the WETH deposit rate on the collateral while paying the USDC borrow rate on the debt position. In addition a 1.95% streaming fee is extracted from the index’s AUM.

Cost to mint / redeem
There will be mint and redeem fees of 0.10%.

Fee split
Flexible Leverage Index will have a streaming fee of 1.95% (195 basis points) and a 0.10% mint / redeem fee (10 basis points). The revenue generated from the fees and any other rewards, after subtracting gas fees, will be split 40% to DeFi Pulse and 60% to Index Coop on a monthly basis.


Pulse Inc suggests a ETH2X-FLI / ETH pool on Sushiswap (Polygon) for initial on-chain liquidity based on observations of the BTC2X-FLI / wBTC pool on Mainnet. We expect self sustaining liquidity driven by FLI traders as well as ETH holders that provide liquidity to achieve a net 1.5 times leveraged position that earns trading fees. Being part of Sushi’s Onsen reward program should further incentivize LPs initially.

‌Author Background

DeFi Pulse and the Pulse Inc brand are committed to maintaining and creating indices as well as driving the continued growth of the Index Coop.

DeFi Pulse is the leading website for the latest analytics and rankings of DeFi protocols. DeFi Pulse’s rankings track the total value locked into the smart contracts of popular DeFi applications and protocols and provides key insights and educational content to help more newcomers go from zero to DeFi.

Marketing support / distribution / partnerships

DeFi Pulse and Pulse Inc will support the launch of this product through all their channels (websites, blog, twitter) and are open to joint marketing efforts with the Index Coop.


‌Copyright and related rights waived via CC0.


Excited to start launching FLI products on Polygon! :small_airplane:


Hi @ChrisG,

I am excited to see this product get launched on Polygon. Even more so it is on Aave :ghost:

Can you help me understand the reasoning for using USDC over DAI ?
I am particularly interested to learn the reasoning given D3M will act to suppress the borrowing costs and lead to better user experience for holding ETH2x-FLI over longer time periods. USDC has a higher cost of capital relative to DAI.

If further information around D3M is needed, let me know, I am confident Maker and Aave would be keen to jump on a call to discuss this further.

Also, is wBTC2x-FLI coming soon, seems like the next logical choice.


Excellent question on stables. Looking into this now and will respond when we know more.

To your second point…

Strongly agree with you here. Expect a roadmap with more details soon.


Very excited to see a FLI product in a gas-lite environment. As we’ve discussed offline, it’ll be helpful to understand a) the level of levering up ETH that takes place today via the traditional stake-and-borrow path on Polygon (as that is the end-user we’re seeking to better serve) and b) the level of fund flows over from mainnet to Polygon. Those two pieces of information, if we can get it, will help better size up the market opportunity. That’s only for scoring purposes. This product is a must, and I’m excited to see this come to market.


Appreciate the support and input here, Mike.

Your questions on borrowing demand for the asset and fund flow to the Polygon network have already been forwarded to the analytics team.

Looking forward to seeing those numbers myself and will endeavor to share here what we can discover.


Hi @Matthew_Graham,

USDC was picked since we already used it for the existing products. I guess that at the time the main reason were:

  • lower borrowing rate on average for USDC (and at this time still the case on Aave v2)
  • lower overall risk (see for example Aave’s risk assessment)
  • large pools (ETH/USDC, WBTC/USDC, etc.) for rebalancing

If we are convinced that the introduction of D3M will cause on average lower borrowing costs for DAI on Polygon while not increasing rebalancing costs significantly I can see using DAI as an option.
More information about D3M would definitely be helpful, for example what maximum rate they target.


Posting the Work Team Analysis results for ETH2x-FLI. Work team analysis was done by @afromac , @allan.g , @Metfanmike and myself.

Link: FLI_Polygon_Product Scoring Chart - Google Sheets

Overall Score: 2.03.
This is just under LINK-2xFLI (2.08) and just above MVI (1.92). It scored exactly the same as MATIC2x-FLI – they represent very similar potential for IC products to experiment on Polygon.

Market Opportunity: 3.5
The product did not receive a point for large market as it will be native to Polygon – a smaller (albeit promising) market than our other products on Ethereum. The team was divided on whether it represented a “must-have” and whether the benefits of saving on gas costs negated the necessity of bridging assets over to Polygon and the friction that process creates.

Revenue Structure (5), Methodologist Impact (3), and Financial Costs (1) were unchanged from the last FLI product scoring (LINK-2xFLI).

Operational Costs scored a 3, noting that there is blowup risk of any FLI product, and that the parameter maintainance and additional monitoring deserved an additional point (this effort feels on par with a monthly rebalance.)

Finally, technical costs scored a 2. FLI products are largely 1s at this point due to the work Set has put into the product suite, but launching on Polygon requires the setup of a new multisig, arb bot, and website tooling for token purchases.

re: a MATIC/ETH tie, you may ask one of the following questions:

  • “oh no! What do we do if both products score the same?” Luckily, this rubric is no longer used for prioritization and product sequencing. That responsibility lives with PWG & EWG as they have the best context on the product requirements and roadmaps.
  • “Um, why did they both score… the same?!” FLI products (as they share a technical framework and a methodologist) generally score very similarly to start with. We also don’t know enough about the Polygon market to differentiate between opportunities there, but think that the ETH / MATIC product pairing makes great sense to start with as a test. ETH2x-FLI represents the possibility of making frequent trades in a low gas environment, which the product was originally designed for but infrequently used for. MATIC2x-FLI represents the opportunity to take a long position in an ecosystem the holder is bought into – something FLI products were not designed for but are frequently used for.

Looking forward to seeing how these products progress & perform!


@Mringz, similar to the request for MATIC2x FLI, can you please assign IIP number and queue up vote to on begin 18:00 UTC Monday 15th November.


I’m all for having ETH2x-FLI on Polygon, but would like to raise awareness for a couple of considerations.

  1. There’s a small amount of ETH2x-FLI that has been bridged from Mainnet to Polygon (See Polygonscan). Launching a new ETH2x-FLI contract on Polygon means that there will then be two ETH2x-FLI tokens (same symbol, different contract addresses), which could cause confusion among users.

  2. @ncitron has been researching a more efficient method to mint leveraged tokens on Polygon. Using this new method, users could very cheaply mint leveraged tokens using the underlying (ETH->ETH2xFLI, MATIC->MATIC2xFLI, etc.). The punchline is a massive benefit in the form of not needing liquidity on Polygon’s DEXs. Users could just mint/redeem when they want to get in or out of a leveraged position.

Noah and I will be discussing #2 with PWG/Automated Indices Pod over the next few days. @afromac @Mringz can you please hold off on the Polygon 2x-FLI IIPs until then? I’d like to take this opportunity to innovate and release an improved product if possible.


Mint/redeem seems perfect in this case. Nice idea!


Hi Edward.

Thanks for flagging these extra considerations.

Agreed that this can create confusion for users. To try address this we have been working with Design to create a variation on the logo with a different colour scheme to differentiate these products from main net. I anticipate having FLIs that are branded specifically to any L2 or sidechain they are deployed on to help with the product differentiation. This may include variations on the naming convention, although this idea has not really been discussed or developed yet. An example could be PETH2x-FLI so signify a Polygon Deployment.

Also agreed that liquidity is an issue on Polygon and this sounds like an exciting innovation. For sure let’s discuss properly this week and see how we can integrate these upgrades into these and future products.

As this is a DG1 vote, and is purely intended to gauge community interest in proceeding with the products, and does not represent a commitment to release on the part of IC, let’s continue with the vote. It will give us an opportunity to clear this governance milestone and sends a strong signal that the community desires the product and EWG/PWG should begin to invest resources into developing the tech to support it.


What if I told you… @anthonyb.eth :wink:

1 Like

Yeah that makes sense to move forward on DG1 while we keep talking. Let’s not hold up the vote! @Mringz


IIP-104 has been queued for snapshot vote for Monday 15th November 18:00 UTC.


1 Like

Update: We’ll go ahead with launching FLI products on Polygon without the upgraded minting feature. We can choose to add this feature at a later time and it will still work with products we launch today.


IIP-104: Launch ETH2X-FLI (Polygon) has passed.

Results available here: Snapshot


DG2 for IIP-104: Launch ETH2X-FLI on Polygon has been queued for vote on Monday, 29 November 2021, 18:00 UTC.


1 Like