Title: Launching iETH-FLI
Author: Pulse Inc
With the successful maintenance and stress testing done through the launch of ETH2x-FLI and BTC2x-FLI , we think it is time for the first Inverse FLI to be born!
We propose the launch of iETH-FLI which is a short position on ETH with 1x exposure to the downside
This new set, if launched, would be based on V0.1 of the FLI (same as both ETH2x-FLI and BTC2x-FLI) methodology and would be the first Inverse Flexible Leverage Index and would be called the Ethereum Inverse Flexible Index
Initial parameters for The Ethereum Inverse Flexible Leverage Index:
- Underlying Asset: USDC
- Target Leverage Ratio: 1
- DeFi Lending Protocol: Compound
- Maximum Leverage Ratio: 1.15
- Minimum Leverage Ratio: .85
- Recentering Speed: 5%
We are proposing that iETH-FLI utilize Circle’s USDCoin (USDC) based on the liquidity & utilization metrics on Compound. This may be changed in the future if other stablecoins present sufficient liquidity and utilization in Compound or supported lending protocol.
Inverse FLIs function the same way FLIs do in the sense that your deposited asset is locked in a money market and used as collateral to borrow more of the underlying asset.
A key distinction between the two is that Inverse FLIs have much lower volatility decay since the APY on stablecoins is significantly higher than the borrowed asset (being ETH in the case of iETH-FLI)
Flexible Leverage Index makes leverage effortless.
The User would not have to worry about:
- Monitoring his leveraged loan 24/7, having to always be ready to act.
- High fees, transactions not being included fast enough or the relative UIs being unresponsive during times of high volatility.
- Paying for overpriced stablecoins to deleverage on time or panic trading to save his positions.
FLI has several key advantages over Legacy Leveraged Tokens:
- Zero slippage via composable entry and exit.
- The unique index algorithm reduces rebalancing needs by an order of magnitude.
- Emergency deleveraging possible during Black Swan events for additional fund safety.
Lending protocols are currently leading the Decentralized Finance space, having multiple Billions in Total Value Locked. There is certainly no shortage in interest for collateralized debt positions, one can simply visit DeFi Pulse and look at lending protocols rank and TVL to get a sense of the magnitude of opportunity this new kind of index can potentially present.
FLI being very dissimilar to any existing or proposed Index opens up a new category of leverage based Indexes.
With this initial Inverse FLI, we are addressing the second part of the market that would like to speculate on any potential downside on the price of the underlying asset
At the time of writing the pool has a utilisation of ~56% meaning $1,555M USDC is left unborrowed.
Flexible Leverage Index enables 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.
FLIt = FLIt-1 * (1 + ((Pricet/Pricet-1–1) * CLRt-1 — (BorrowRatet * (CLRt-1 -1)/CLRt-1)))
Calculation of the new Current Lever Ratio for the period:
CLRt+1 = max(MINLR, min(MAXLR, TLR * (1 — RS) + CLRt * RS))
Flexible Leverage Index will have a streaming fee of 1.95% (195 basis points) and a 0.1% minting /redeeming fee. The revenue generated from the streaming fee will be split 40% to DeFi Pulse and 60% to Index Coop.
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. Providing key insights and educational content to help more newcomers go from zero to DeFi.