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Aave’s Freeze on ETH Borrowing Pauses icETH Issuance
Aave’s Freeze on ETH Borrowing Pauses icETH Issuance
The lead-up to the Ethereum Merge has seen a degree of volatility and uncertainty throughout the DeFi ecosystem.
9/7/2022
Index Coop
Content
The lead-up to the Ethereum Merge has seen a degree of volatility and uncertainty throughout the DeFi ecosystem. As a result, a number of protocols and products are taking proactive steps to mitigate any unexpected challenges and ensure that user funds remain secure.
Why is icETH issuance paused?
Aave has recently paused ETH borrowing. As the strategy behind icETH requires the borrowing of ETH on Aave to function properly, minting of the token is currently disabled on Ethereum mainnet. This pause also affects icETH holders on zkSync.
As no new units can be minted, it is very likely that icETH with trade at a premium to NAV (trade for more than what the underlying components are worth) on secondary markets, aka decentralized exchanges. This has the potential to impact new buyers who could unknowingly overpay. With this in mind, market makers will remove liquidity from ZigZag exchange to help to protect users on zkSync and Argent. icETH NAV may also be affected on Ethereum mainnet, so it is not advised to sell on secondary markets.
Options for icETH holders
All user funds are secure, but no new units will be created as mentioned above. This is temporary and will be resolved with a successful Merge. Those taking a long-term approach with their icETH allocation are better off HODLing.
If any user wishes to exit their positions on zkSync, they can first bridge their tokens from Argent/zkSync to mainnet.
With icETH on mainnet, holders can unwrap the token to its underlyings by visiting app.indexcoop.com/iceth and choosing to redeem via the Flash Mint option. Please note that Flash Mint is a more gas-intensive transaction, so it’s best suited to high-value transactions.
Keeping funds secure
Market makers have also signaled to Index Coop that they will temporarily remove liquidity for all other Index Coop products on the ZigZag exchange in the immediate period before and after the Merge. This will effectively pause all Index Coop products from trading on zkSync and the Argent app during the 24 hours before and after. We will provide timely updates to token holders as additional information becomes available.
Removing liquidity protects market makers from any price feed issues that could result in automated buys or sells at incorrect prices. While the likelihood of this taking place is low, precautionary steps like these help reduce the risk for market makers and users. The security of funds can be maintained by eliminating the potential negative outcomes caused by incorrect price feeds.
As mentioned previously, Index Coop will continue to take proactive measures to ensure the security of icETH token holders:
Suspending the icETH streaming fee
Until further notice, Index Coop has dropped the icETH streaming fee to 0%.
Strategy tokens with automated safeguards
Continued use of Automated Leverage Management - our strategy tokens and smart contracts are coded to ensure that market volatility does not lead to the liquidation of funds. This includes the ability to safely de-lever.
The risk automation in place for icETH will continue to dynamically de-lever if the stETH discount increases relative to ETH and mitigate liquidation risk
Provide transparent and timely information
We will continue to monitor potential risks and communicate transparently with our token holders
This will not affect any users who hold their Index Coop tokens on Ethereum mainnet. Users on the Ethereum network will be able to buy/sell via DEXs and mint/redeem as per usual.
Contact Index Coop
Have questions, just want a better understanding of the Merge, Index Coop tokens, or zkSync? Reach out to us in our #general Discord channel.
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FAQs
Index Coop yield tokens simplify earning yield in DeFi by automating complex strategies and diversifying across protocols. They are user-friendly and cost-efficient, appealing to both new and seasoned DeFi users.
Leverage tokens automate a leveraged position by utilizing onchain money markets like Aave or Morpho to borrow funds, amplifying a user's exposure to an asset without requiring manual management. The token's smart contracts autonomously handle the borrowing, lending, and rebalancing of assets, maintaining a consistent leverage ratio despite market fluctuations. This automation eliminates the complexities of collateral management and liquidation risks, while also charging low, transparent fees that avoid expensive funding rates often charged by perps.
Index Coop is a decentralized autonomous organization (DAO) that specializes in creating and maintaining onchain structured products. Index Coop aims to democratize access to the crypto market, empowering everyone to participate in the growing digital asset ecosystem with ease.
No, yield automatically compounds and accrues to the token price. The value of the tokens you hold in your wallet will simply go up over time without the need to claim or compound rewards.
Index Coop products protect you from liquidation with automated risk management that rebalances assets to maintain a target leverage ratio that avoids liquidation.
INDEX is the ERC-20 governance token on Ethereum for Index Coop. INDEX empowers its holders to participate in decision-making processes that shape the future of Index Coop.
Yes, all Index Coop products are instantly redeemable for their underlying value at all times.
Yes, all Index Coop smart contracts have been audited by leading independent security firms such as OpenZeppelin, ABDK, Isosiro, & more. There is also an active bug bounty program through ImmuneFi. Audit information is published in the docs here.
Streaming fees (an annual fee paid continuously block-by-block), mint and redeem fees (only on leverage tokens), and borrow costs (interest paid to borrow funds from onchain markets when using leverage).