IIP: 188
Title: Upgrades to High Yield ETH Index (hyETH)
Status: Proposed
Authors: @MrMadila
Reviewers: @anthonyb.eth, @0xdunerider
Created: 16th Dec 2024
1. Abstract
This proposal advocates for upgrades to the hyETH product by lending WETH via a purpose built Morpho Vault managed by Gauntlet. Objectives include; significantly increasing scalability, risk adjusted returns, and growth potential whilst reducing the overall operational burden to the Index Coop.
2. Motivation
The Index Coop launched hyETH in April 2024 after a successful pre-sale to enable users to take advantage of very high yields available across DeFi at the time. Whilst the narrative was strong and the product enjoyed initial success, scaling proved difficult over time as yield sources frequently rotated faster than the rebalancing schedule which already had a typically elevated cadence. This also meant the operational burden in applying the methodology was very high. As available yields in DeFi dropped off, growth has stalled. The composition and nature of Index Protocol also meant that issuance and redemption costs made the product uneconomical for all but very large users.
In light of these challenges The Index Coop Product team has researched various solutions and proposes to rebalance the product from a mix of Pendle LRT PTs and DeFi protocol vaults to one single Morpho vault managed by Gauntlet. The ethos of the original product will remain, with WETH deposits being lent against collateral such as Pendle LRT/LST PTs and in future other assets where there is strong demand to borrow WETH.
Gauntlet have been chosen for their reputation as the most experienced risk manager in DeFi lending and the largest Vault curator on Morpho.
Morpho have been chosen as the fastest growing lending primitive providing a trustless lending primitive layer combined with an abstracted non-custodial risk and yield vault management layer (Morpho Vaults)
3. Specification
Rebalance
- Rebalance 100% of the current asset allocation to WETH and deposit into the IndexCoop hyETH Morpho Vault
This will mean the hyETH token built upon Index Protocol effectively becomes a wrapper around the Morpho Vault. The advantages of the wrapper is that any incentives distributed to the vault can be re-invested and compounded back into the product boosting the ETH denominated yield for users.
Fees
- Reduce streaming fees to 0% on the Index Coop token
- The Morpho Vault will have a 0% performance fee for the first 3 Months after the initial rebalance and deposit before increasing to 20%
- Note 1: Performance fees are a departure from the original streaming fee mechanism. This means that if the gross yield on hyETH is 10% fees generated will be 2 percentage points. This is much more standard practice both in defi and traditional finance for yield products
- Note 2: the performance fees are only charged on the underlying yield. NOT on any additional yield generated from re-invested incentives
Revenue
- Revenue will be split 70/30 to Index Coop / Gauntlet respectively whilst the Vault TVL is less than $15m
- Revenue will be split 50/50 to Index Coop / Gauntlet respectively once the Vault TVL is greater than $15m
- Note 1: $15m TVL will apply to the underlying Morpho Vault, not the TVL wrapped by the original Index Coop token as revenue is now generated and collected at the Vault level
- Note 2: A simple 30 day moving average will be used to determine that the Vault’s TVL is sustaining the $15m threshold before the fee split is adjusted
- Note 3: If the Vault TVL falls below $15m the fee split will not revert to 70/30
- Note 4: hyETH PRT holders will continue to receive their pro-rata share of revenue attributable to Index Coop
4. Voting
FOR: Approve the proposed upgrades to hyETH
AGAINST: Maintain hyETH under the existing specification
5. Disclaimer
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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.
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6. Copyright
‌Copyright and related rights waived via CC0.