IIP-182: Launch ETH2x & BTC2x on Aave v3, Deprecate FLIs on Compound v2

IIP: 182
Title: Launch ETH2x & BTC2x, Deprecate FLIs
Status: Final
Author(s): @anthonyb.eth
Reviewer(s): @allan.g , @MrMadila , @sidhemraj
Created: 2024-01-17

1.0 Abstract

The Index Coop core team proposes that the DAO launch Ethereum 2x (ETH2x) and Bitcoin 2x (BTC2x) leverage tokens on Ethereum mainnet. These automated leverage tokens will be built on Index Protocol and utilize Aave V3 to achieve 2.0x leverage.

These new leverage tokens are intended to replace ETH2x-FLI and BTC2x-FLI, which were originally launched on Set Protocol and Compound V2. Given that Set Protocol cannot be upgraded and Compound V2 is undergoing deprecation, this proposal also seeks $INDEX holder approval for deprecating the FLIs and migrating any remaining capital to the new Index Coop 2x tokens.

Note to existing FLI holders:

This is a preliminary proposal to deploy new versions of the Index Coop leverage products. You do not need to take any action at this time. If this proposal is approved in its final form, we will proactively inform you of any changes you need to be aware of. FLI tokens will continue functioning as designed.

2.0 Market Information

2.1 User Stories

  • As a token holder, I want leveraged exposure to ETH or BTC
  • As a token holder, I want automated liquidation protection on my leveraged positions.
  • As a token holder, I want access to leverage with lower overall costs compared to perps.
  • As a token holder, I want persistent leverage instead of decreasing leverage as prices rise or increasing leverage as prices fall.

2.2 Market research

The primary motivation for launching new 2x tokens on Ethereum mainnet is to enable existing customers to maintain automated leverage exposure using Index Coop products. For context, legacy FLI products are built on Compound V2, which is undergoing deprecation. As liquidity leaves Compound V2, USDC borrowing costs climb, resulting in higher carrying costs for FLI holders. Additionally, if the USDC supply is fully utilized in Compound V2, then issuance for FLIs will be disabled, leading to potential premiums on the secondary market. Levering up when the ETH price increases would also be disabled in this scenario where USDC supply is fully utilized.

USDC supply in Compound V2

Additionally, the FLI tokens are deployed on Set Protocol V2, which is not upgradeable since Set Labs burned the protocol keys that permitted new contracts to be added to the protocol. As a result, it is not possible to “upgrade” the FLI tokens in place or otherwise address the gradual deprecation of Compound V2.

However, Index Coop has developed new smart contract infrastructure for Index Protocol that enables leverage strategies on Aave V3. This new infrastructure enables automated tokens like ETH2x and BTC2x as well as leverage staking strategies. For this reason, the new Index Coop 2x tokens will be built on Index Protocol using Aave V3 for collateralized debt position management. Favourably, new 2x tokens will be less gas-intensive to issue and redeem than the legacy FLIs, and higher loan-to-value parameters in Aave V3 improve efficiency and risk automation.

Over 4,000 unique addresses currently hold ETH2x-FLI, and there have been over 11,131 unique addresses that have held ETH2x-FLI since its launch in March 2021. For BTC2x-FLI, there are currently 800 unique holders with historical address exposure of 2,370. These holders represent a significant share of Index Coop’s user base and contribute meaningfully to TVL and recurring revenue. New and existing user activity has also increased in the past three months, including 201 new users, 238 users active multiple months in a row, and 384 “resurrected” users that were previously dormant. These new leverage tokens will allow Index Coop to serve and sustain these new and existing users.

2.3 Differentiation

The following products or services offer similar value propositions to users:

Product Leverage Provider Chain(s) TVL Fees
Binance Leverage Tokens Binance / Perps CEX ETHUP: $10m BTCUP: $10m 0.10% Issuance 0.10% Redemption 3.65% Management + Funding Rates
Toros Leverage Tokens Aave V2 / dHedge Polygon, Optimism, Arbitrum ETH 3x: $6m ETH 2x: $620k BTC 3x: $1.5m BTC 2x: $6k 2.00% Management 0.10% Entry + Carrying Cost
SummerFi Multiply Aave V2, Aave V3 Ethereum, Arbitrum, Optimism, Base ETH (AV2): $4m ETH (AV3): $0.6m 0.20% Swap + Carrying Cost
DeFi Saver Aave V2, Aave V3 Ethereum, Arbitrum, Optimism, Base ETH (AV2): $19m ETH (AV3): $7m 0.25% Swap 0.25% Service 0.25% Automation + Carrying Cost
Index Coop FLIs Compound V2 / Set Protocol Ethereum ETH2x: $24m BTC2x: $3.4m 0.10% Issuance 0.10% Redemption 1.95% Streaming + Carrying Cost
Index Coop Leverage Tokens Aave V3 / Index Protocol Ethereum – 0.10% Issuance 0.10% Redemption 3.65% Streaming + Carrying Cost

It is worth noting that perpetual platforms across L2s may meet similar needs to Index Coop’s 2x tokens on mainnet. However, the table above focuses on the most immediate competition on Ethereum mainnet. Additional market research comparing leverage tokens to perps is being performed currently and will be published soon by Index Coop.

Feature Comparison:

Product Liquidation Protection? Persistent Leverage? Rebalance Costs Notes
Binance Leverage Tokens Yes No Paid by Provider real leverage drifts between 1.25x - 4.00x
Toros Leverage Tokens Yes Yes Paid by Provider not available on Ethereum mainnet
SummerFi Multiply No No Paid by User user must manage position
DeFi Saver No No Paid by User automation requires $30k debt minimum
Index Coop FLIs Yes Yes Paid by Provider subject to Compound V2 carrying costs
Index Coop Leverage Tokens Yes Yes Paid by Provider subject to Aave V3 carrying costs

Again, this table focuses on the closest competitors on Ethereum mainnet, so perpetual platforms on L2s are not included. Regardless, the largest perpetual platforms do not offer liquidation protection, persistent leverage, or coverage of rebalancing costs.

2.4 Marketing support / distribution / partnerships

At launch, ETH2x and BTC2x will be available to unrestricted persons and not for restricted persons as defined here via:

  • Index Coop App for issuing and redeeming
  • Decentralized Exchanges (DEXs), subject to independent liquidity providers
  • DEX Aggregators (CoW Swap, Matcha, 1inch), subject to independent liquidity providers

Additional partners may be onboarded before and after launch. Self-issuance support will be enabled through the Index Coop App and also made available through the Self-issuance SDK for external integrations.

2.5 Marketing risks and weaknesses

  • gas costs on Ethereum mainnet may be prohibitive for many users
  • similar leverage solutions are available on L2s

3 Financials

3.1 Revenue

The 2x tokens will have a daily streaming fee of 1bp (0.01%) or an annualized streaming fee of 3.65%.

Additionally, these tokens will have a 10bp (0.10%) issuance and redemption fee.

It is worth noting that the new 2x tokens have a higher annualized streaming fee than the legacy FLI tokens. This is attributed to increasingly expensive gas costs on Ethereum mainnet and to comparative pricing of the closest alternatives. Index Coop will pay for all rebalancing gas costs (not product holders or Set Labs [which was the case when the legacy FLI tokens were first launched]). Index Coop has also made significant investments in its new leverage token infrastructure that must be recouped.

3.2 Fee splits

Index Coop will earn 100% of the revenue from these new leverage tokens, but may enter into revenue-sharing agreements with third parties when appropriate and compliant; Index Coop will also cover 100% of the gas costs associated with rebalancing.

Scalara, the FLI methodologist, may receive a share of the new 2x token revenue based on TVL attributed to the legacy FLI tokens once they are deprecated, pending an agreement.

Update: If passed, IIP-181 will give Index Coop 100% of the revenue without any share of the revenue going to Scalara, in exchange for a one-time payment of $120,000 USDC. Please read the forum post for more details.

3.3 Product Costs

In the long run, the new methodology proves to be more efficient for both users and Index Coop. ETH2x has less trades than ETH2x-FLI in both the backtested actual data (shown below) and simulations based off historical volatility. The primary reason is that the new methodology doesn’t require a rebalance every 24 hours and it only rebalances when it is necessary – that is the leverage ratio is outside on the bounds. This is especially true as the product grows to larger TVLs. It is true, however, that the costs to operate the product can rise during extremely volatile periods, but in the long run this is more than offset by the reduced operational costs during normal periods.

The primary cost of operating the leverage products is the cost of rebalancing transactions. Currently, a rebalance costs approximately 750,000 wei which at $2,500/ETH and 40 gwei gas amounts to $75 per rebalance. We’ve also analyzed the costs using historical gas prices since high volatility periods tend to have higher gas prices. Even with this, the new methodology is more efficient for Index Coop as shown below.

4.0 Specification

4.1 Product design

4.1.1 Range-Bound Methodology vs. Flexible Leverage Methodology

The Index Coop 2x tokens will utilize a range-bound methodology that has several notable differences from the Flexible Leverage Index methodology employed by the FLI tokens. The differences largely have to do with when rebalancing occurs.

In the range-bound leverage methodology, rebalancing occurs when the current leverage ratio is less than the minimum leverage ratio or greater than the maximum leverage ratio (similar to icETH). Compare this to the FLI methodology, where a rebalance occurs every 24 hours regardless of the maximum or minimum leverage ratio; for example, if the minimum leverage ratio was set to 1.7, the maximum leverage ratio to 2.3, and the current leverage ratio was 2.1, the index would still rebalance. Under the range-bound methodology, daily rebalancing is removed.

This has two benefits. First, it reduces the number of rebalances that incur costs for both the user and for Index Coop. Secondly, it allows the leverage ratio to periodically leave the targeted range. To prevent against liquidations, the Ripcord function allowed anyone to rebalance the index, if the current leverage ratio is above the ripcord leverage ratio. This was incentivized with a bounty and will continue to be under the new methodology. The benefit of the rangebound methodology, however, is that the ripcord will only be called in the most extreme cases. Ripcord rebalances are not ideal for users or Index Coop. For users, the rebalances are faster and have more aggressive slippage parameters and trade sizes which is necessary to prevent against liquidation, but causes larger-than-normal losses due to increased rebalancing costs. For Index Coop, ripcord rebalances cost significantly more than normal rebalances.

The second change is changing from an asymmetrical target range to a symmetrical target range. ETH2x-FLI currently has a range of 1.7 - 2.3 while BTC2x-FLI has a range of 1.8 - 2.2. The rangebound methodology will set the minimum leverage ratio to square of the target leverage ratio / maximum leverage ratio. This means that equivalent-sized moves to the upside or downside will result in a rebalance.

4.2 Methodology

4.2.1 ETH2x Parameters

Detail Value
Token Name: Index Coop Ethereum 2x Index
Token Symbol: ETH2X
Collateral Asset: wETH
Debt Asset: USDC
Leverage Module: Aave V3
Token Value at Launch: $100
Streaming Fee: 3.65%
Mint Fee: 0.10%
Redeem Fee: 0.10%
Parameter Configuration
Target Leverage Ratio: 2.00
Minimum Leverage Ratio: 1.73913043478
Maximum Leverage Ratio: 2.30
Rebalance Interval: Range Bound
Recentering Speed: 0.05
Epoch Length Infinite
Ripcord Leverage Ratio: 3.00
Ripcord Incentive: 1 ETH
Initial Token Supply Cap: 1,000,000 units
DEX Pool TVL Status Slippage Tolerance Max Trade Size (ETH) Ripcord Slippage Tolerance Ripcord Max Trade Size (ETH)
Uniswap v3 ETH-USDC 5BPS $273M Primary 0.25% 400 ETH 0.50% 1,250 ETH

4.2.2 BTC2x Parameters

Detail Value
Token Name: Index Coop Bitcoin 2x Index
Token Symbol: BTC2X
Collateral Asset: wBTC
Debt Asset: USDC
Leverage Module: Aave V3
Token Value at Launch: $100
Streaming Fee: 3.65%
Mint Fee: 0.10%
Redeem Fee: 0.10%
Parameter Configuration
Target Leverage Ratio: 2.00
Minimum Leverage Ratio: 1.81818181818
Maximum Leverage Ratio: 2.20
Rebalance Interval: Range Bound
Recentering Speed: 0.10
Epoch Length: Infinite
Ripcord Leverage Ratio: 2.70
Ripcord Incentive: 1 ETH
Initial Token Supply Cap: 1,000,000 units
DEX Pool TVL Status Slippage Tolerance Max Trade Size (ETH) Ripcord Slippage Tolerance Ripcord Max Trade Size (ETH)
Uniswap v3 wBTC-ETH 5BPS $64M Primary 0.25% 10.5 BTC / 200 ETH 0.50% 1000 ETH
Uniswap v3 ETH-USDC 5BPS $273M Primary 0.25% 200 ETH 0.50% 1000 ETH

4.2.3 Backtest Results

NAV Comparison

Leverage Ratio Comparison

Please note that past performance is not indicative of future returns, and that this data is for informational purposes only and should not be construed as financial advice.

4.3 Migration of Existing Tokens

The following plan details the steps and timelines for deprecating the FLIs and migrating remaining capital to the new 2x tokens:

  1. (Ongoing) Communicate deprecation and migration plans to customers and progress through $INDEX governance (underway). Given the nature of the proposal, there will be an extended comment period between initial publication (January 17) and formal snapshot vote (January 31) for the community to review and respond accordingly.
  2. (February 14) After a successful $INDEX governance vote, de-lever the FLI tokens by gradually lowering the target leverage ratio to 1.0x. This will result in each setToken holding either WETH or WBTC collateral and no USDC debt. Fees on the FLI tokens will also be disabled at this stage.
  3. (February 14) Rebalance any remaining collateral in the FLI tokens into the new Index Coop 2x tokens. This step ensures that legacy FLI holders continue to have automated leverage exposure to ETH and BTC but on modernized infrastructure with lower carrying costs and improved efficiency. During the migration process the new token will start at 1.0x matching the de-levered FLI tokens and then wound up to 2x once the old FLI tokens hold 100% of the new tokens.

For FLI holders who wish to maintain their leverage exposure, no action is required as the FLI tokens will effectively operate as a “wrapper” around the new 2x tokens. FLI holders will also be able to “unwrap” their FLI tokens for the new 2x tokens in the Index Coop app by February 19, after the migration is completed.

It is also worth noting that issuance will be disabled for FLI tokens after step three, with users directed to the new Index Coop 2x tokens moving forward (which can be issued and redeemed permissionlessly). As always, permissionless redemption of FLI tokens (as well as the new Index Coop 2x tokens) will be possible before, during, and after each of these stages for holders who wish to exit positions entirely.

4.4 Governance

The methodology as detailed above must be voted on and approved by $INDEX token holders before launch. Any material changes to the methodology will be communicated externally and are also subject to an $INDEX token vote.

4.5 On-chain liquidity analysis of underlying tokens

The underlying assets–ETH, WBTC, and USDC–are extremely liquid.

5 .0 Product liquidity

Third-party liquidity providers may provide DEX liquidity for ETH2x and BTC2x as they are permissionless to issue and redeem for non-restricted users.

6.0 Disclaimers

You shall not purchase or otherwise acquire our restricted token products if you are: a citizen, resident (tax or otherwise), and/or green card holder, incorporated in, owned or controlled by a person or entity in, located in, or have a registered office or principal place of business in the U.S. (defined as a U.S. person), or if you are a person in any jurisdiction in which such offer, sale, and/or purchase of any of our token products is unlawful, prohibited, or unauthorised (together with U.S. persons, a “Restricted Person”). The term “Restricted Person” includes, but is not limited to, any natural person residing in, or any firm, company, partnership, trust, corporation, entity, government, state or agency of a state, or any other incorporated or unincorporated body or association, association or partnership (whether or not having separate legal personality) that is established and/or lawfully existing under the laws of, a jurisdiction in which such offer, sale, and/or purchase of any of our token products is unlawful, prohibited, or unauthorised).

None of our token products have been or will be registered under the U.S. Securities Act of 1933, as amended, or with any securities regulatory authority of any state or other jurisdiction of the U.S. Our restricted tokens may not be offered, sold, or delivered within the U.S. to, or for the account or benefit of, Restricted Persons. Our restricted tokens that may be offered on secondary markets and other platforms are not for distribution to any Restricted Person. No offers, sales, resales, or deliveries of any of our token products may be made in or from any jurisdiction (including the U.S.), except in circumstances that will result in compliance with any applicable laws and regulations and that will not impose any obligations on Index Coop. Persons who obtain our token products are required to inform themselves about and adhere to any such restrictions. Index Coop reserves the right to impose further restrictions at its sole discretion, which will be communicated through its terms of service or on its website. All website users, including U.S. Persons, must read our Terms of Service and List of Restricted Tokens. U.S. person(s) must comply with our Terms of Service and not use restricted Index Coop tokens.

*Index Coop does not provide tax advice. Nothing contained in this document should be construed as tax advice, and you should consult with your own tax advisor before making any financial decisions.

7.0 Copyright

‌Copyright and related rights waived via CC0 2.


Thanks for your post @anthonyb.eth. First off, hats off to the team for their dedication in improving protocol’s infrastructure during these tough market conditions. My main concern is regarding the new fee structure.

Leveraged products clearly found some traction among the crypto native crowd and combined make up $28m of the protocol’s TVL, which is roughly 38%. Given the importance of the product to the protocol, I wonder what thinking process went into almost doubling the streamline fee to 3.65%, which seems pretty steep. I noticed from your table that this might be an approach to align with Binance’s fee structure.

However, I believe our situation is quite different from Binance’s. Their leveraged product is clearly a very low priority for them, and given they operate the world’s largest crypto exchange, they have the leverage to set higher fees. I think Index Coop is in a very different position.

I’m aware that rebalancing on the mainnet comes with substantial costs. Yet, I’m puzzled as to why the fees are almost doubling compared to those for FLIs, as the cost of rebalancing, per your post, are going down. This part of the strategy, especially as quoted below, doesn’t seem entirely convincing to me:

In the current market climate, with growing interest in crypto in general and particularly in ETFs and similar products, wouldn’t it be more strategic for Index Coop to prioritize growth over revenues? I.e., instead of hiking fees, dumping them. This seems like an opportuny to build momentum. In the long run costs will likely go down to sub-1% to converge with TradFi expense ratios for similar products as we migrate to L2s and liquidity improves.

Also, I’m a bit concerned about how our high fee structure might play out in discussions with potential partners/integrators, if there’s such plans. While it’s essential to maintain a healthy revenue, we also don’t want partners to feel their clients are being unduly charged. That said, a higher fee does offer more flexibility in negotiations, particularly regarding fee splits.

Would love to hear your thoughts on this, and thanks again for all the work you do!


Hey @Nay - thank you for the thoughtful response! I can elaborate a bit more on the higher streaming fee and address some of your questions.

It is worth noting that these cost projections are backward-looking and that they do not reflect a future state where the price of ETH is increasing and gas becomes more expensive as a result in USD terms. You are correct that the expectation is for the new 2x tokens to rebalance less frequently than the legacy FLIs, but in the likely scenario that ETH price goes up over a multi-year timeframe, the cost per rebalance will be higher for the new 2x tokens. A meaningful amount of cumulative gas costs on the FLIs can also be attributed to small periods of heightened volatility where gas can be exceptionally high, and these new 2x tokens are not exempt from those scenarios.

An annual streaming fee of 3.65% translates to a daily streaming fee of 0.01% or 1bp, which is simplest for users who might be comparing costs across different leverage solutions. Other products that cater to short-to-medium-term leverage often present fees in daily terms, like Binance, or even hourly terms, like perp platforms.

An important differentiation between Binance’s leverage tokens (and perps in general) is that users must pay a funding rate in addition to other fees. It is not uncommon for users who are levered long ETH or BTC to pay an annualized funding rate of +20%, and that excludes any issuance, redemption, or management fees. Though our leverage tokens do pay a carrying cost on Aave (collateral * lend APY - debt * borrow APY), it is a fraction of historical funding rates. So the total cost to the customer is significantly less for our leverage tokens than Binance’s. We’ll be publishing more extensive research on these comparisons closer to launch too.

Lastly, the new Aave V3 infrastructure developed for Index Protocol cost $150k for multiple audits. That figure does not include multiple months of developer resources spent on designing and developing the smart contracts infrastructure in the first place. Initially, we were optimistic that some of these costs could be offset by Aave grants, but with their recent restructuring, we cannot count on this. Needless to say, we would like to recoup this investment as much as possible.

We would agree that fees on index products will trend toward zero, which is why we’ve already begun amending fees on products like dsETH. We’ve also invested heavily in other protocol infrastructure - like Auction Rebalancing and Decentrazlied Reweighting - to drive down operational costs and enable low-or-no fee products in the near future. However, because our leverage index tokens require constant rebalancing, the operational costs cannot be eliminated in the same way as basic index products (at least not on mainnet).

Please let me know if this makes sense or if there are other questions you’d like addressed!


Yes, that clarifies most of the points, thank you. I wonder how sensitive users will be to changes in the fee structure, I guess we’ll have to wait and see.

1 Like

gm gm love to see the FLIs moving to Aave V3 - curious for ETH2x why stETH or other LST isn’t being used as the leverage asset, not gaining the staking yield feels like adding a massive opportunity cost to holding ETH2x


gm @oneski22! Happy to see you back in the forum!

The carry cost is one factor, but on the leverage products, rebalancing costs are a far more significant factor on tracking error. Since, ETH is more liquid than any of the other LSTs we will get better execution on those rebalancing trades which will be more important than the difference in aWETH and wstETH yields.

1 Like

hey @oneski22 - great question! I’ll add some more color to @anthonyb.eth’s reply

Because these products require constant rebalancing, the swap fees and price impact on every trade add up over time and can contribute to tracking error and volatility decay. For that reason, ETH/USDC is the better pair to go with because there is substantially more liquidity and therefore less price impact over the long term to drag down performance.

In terms of opportunity cost, the ETH collateral under the hood will be lent out on Aave and earn the variable supply APY, so holders do earn yield still on their ETH. Granted, the ETH supply APY is not consistently as high as the wstETH staking APY, but given the prevalence of the leverage staking trade on Aave, those rates trend towards each other.

It’s also worth noting that a stETH “de-peg” would negatively affect the performance of the product, so it does introduce additional risk compared to pure ETH.

Hi Team,

It has been a long time since I visited this forum. The news of relaunching FLI products and moving to Aave v3 is exciting. Congrats on this milestone.

Reading over the specification, I am curious as to why not wstETH as a deposit asset. I understand the differences in wstETH v ETH liquidity. However, the tracking error is really only an issue at sizeable TVL and when during de-leveraging when routing via an aggregator ?

Leveraging up:

  1. USDC swapped to ETH
  2. Deposit ETH into Lido’s deposit contract
  3. Deposit wstETH into Aave v3

To further mitigate any issues, the product vault can use Aave’s &/or Balancer’s flashloan facilities to reconfigure the product at a later date. Meaning, launch the product with enhanced distribution and reach through partnering with an LST provider and then if it is problematic, migrate away from this to wETH at a later date.

If flashloans are being used to leverage up/down within the product, then there are fees on Aave v3. These fees are somewhat negotiable for achieving a discount. DMs are open if this is yet to be explored.

I would like to think alignment with an LST team such as Lido would bring other benefits to users, like rewards or added distribution… if the benefits of wETH v LST are quantified, then perhaps offsetting these costs incurred by users is indeed the hurdle rate of any partnership arrangement.

Regarding the nominated debt asset, USDC. This makes the most sense from a liquidity perspective and I think this is the right swap routing. The below table provides a high level summary of the stable coin borrow rates across Aave v3 and Compound v2 + v3. DAI is a worthy consideration.

On this bit, the divergence between LST APR and the Borrow Rate is around 55bps to 60bps. Meaning if the LST is 3.3%, a Borrow Rate of 2.70%-2.75%. This tends to be a fair approximation of risk discounting when thinking ETH borrow rate converges to LST, it is more LST minus 55bps to 60bps that ETH borrow rates converge to.

Overall, it is exciting to see the products being relaunched and the above points are somewhat minor optimisations. A third party to launch with that brings incentives though, might be


Hey @Matthew_Graham,

Great to have you back in the forum! A couple of things here so I will break them out:

LST as Collateral Asset

There are a few concerns with LSTs as collateral:

  1. Liquidity
  2. Risk

As you mentioned, levering up and issuance aren’t impact by the presence of an LST vs. wETH. It is deleveraging and, to a smaller extent, redemption. For the most part, we are concerned about deleveraging rebalances where the token would need to trade from LST - USDC. There are two separate issues at play.

Product Risk - You are correct that during normal times ETH2x’s size is not size. The suggested trade route would be wstETH-ETH-USDC. For any normal size rebalance under normal conditions this would be absolutely fine from the user perspective and they would likely experience little price impact and incur only 1bp additionally in swap fees on the trade volume. However, this route is not actually that deep and could change suddenly giving users much worse execution on a rebalance. One point of misunderstanding could be that the trade route must be specified so you cannot use an aggregator.

Index Coop Costs - Regardless, Index Coop would bear the costs of needing to do a multi-hop trade for each rebalance and this would be a significant addition cost.

As for the risk side, LSTs present too much added risk for a product that is already very risky. Frequently, the stETH-ETH peg will drift below 1 as shown here. For non-levered exposure, these small deviation are fine, but when off-peg a rebalance will crystalize that loss. There are also plenty of risks with LSTs that are not just small peg deviations, but I won’t go into those here.

My overall point is that LSTs introduce a lot of unnecessary risks. From a user POV, if those risks had a benefit which improved the cost of carry significantly, it would be worth considering, but since they don’t improve it by much and make execution worse and introduce risks like peg-volatility and full-blown de-peg risks, it doesn’t make a lot of sense. That said, I completely understand the growth angle, however, I think we want to take a more conservative approach that reduces risks for the user even if its at the expense of some lost growth opportunities.


We will definitely want to discuss discounted flashloans as minimizing entry and exit costs is very impactful for users and I greatly appreciate your help with this. I think we already have a solution in place for this, but I will let @christn confirm.

Debt Asset as USDC

We did take a look at using DAI as the debt asset, but DAI suffers from the same problems as LSTs as the collateral asset when it comes to liquidity and the rates are not enormously different.


Now that the migration plan details have been finalized, we will proceed with the Snapshot vote.

The vote has been scheduled for today, February 1s, at 17:00 UTC: Snapshot

The Snapshot vote has concluded in favor of launching ETH2x and BTC2x on Aave V3 and Index Protocol as well as migrating and deprecating ETH2x-FLI and BTC2x-FLI on Compound V2 and Set Protocol.