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FAQ: Index Coop Products and The Merge
FAQ: Index Coop Products and The Merge
With The Merge set to take place in the next few weeks, we're here to answer any questions you may have about Index Coop products and The Merge.
8/29/2022
Index Coop
Content
In this post, we'll cover frequently asked questions regarding Index Coop ETH products—Interest-compounding ETH Index (icETH), Ethereum Flexible Leverage Index (ETH2x-FLI), and Inverse Ethereum Flexible Leverage Index (iETH-FLI-P). Feel free to reach out to us on Discord with any outstanding questions.
Do I need to do anything with my Index Coop products before The Merge?
No. All Index Coop products held will be reflected on the new PoS chain. If you hold icETH, iETH-FLI-P, or ETH2x-FLI, please be aware of changes in borrowing and lending rates that may affect these products. More details are below.
Will Index Coop support the Ethereum proof-of-work (PoW) chain?
Index Coop will not be supporting the Ethereum PoW chain.
If The Merge is a bullish event for ETH, why is icETH APY so low?
There is a narrative in the market that some ETH holders will borrow ETH ahead of The Merge which will increase their holdings of ETHPoW, which they may or may not be able to sell for a small profit. This is increasing the borrow costs for ETH which pushes down the net APY for icETH.
What are the benefits of holding (icETH/ETH2x-FLI/iETH-FLI-P) before The Merge?
icETH: The staking rewards on stETH may increase after The Merge. If this continues to exceed the borrow cost of ETH then icETH APY will also increase.
ETH2x-FLI: If users are bullish on The Merge (they think ETH price will rise), they would benefit by holding ETH2x-FLI, as it will outperform ETH in the short term if the price of ETH rises.
iETH-FLI-P: If users are bearish on The Merge (they think ETH price will fall) on The Merge, they would benefit by holding iETH-FLI-P, as it will appreciate in value as the price of ETH falls.
What are the risks of holding (icETH/ETH2x-FLI/iETH-FLI-P) before The Merge?
As mentioned above, high ETH borrowing costs may affect icETH and iETH-FLI-P. If the borrow rate on ETH exceeds the APY from stETH, then icETH may have a temporary net negative APY. Note, however, that if this does happen, it is expected to be short and that post-Merge stETH APY is expected to increase.
Users of FLI products should note that volatility affects how the FLI products perform. In the event of extreme volatility, the FLI products will automatically de-lever to protect from liquidations.
What if...
What if Interest rates spike on the FLIs?
Each FLI is subject to two different interest rates: the lending rate associated with the collateral asset, and the borrow rate associated with the debt asset.
2x FLIs earn lending interest on ETH / BTC / MATIC collateral balances and pay interest on USDC debt. The ETH 2x product on Mainnet–which is built on Compound–and the ETH2x product on Polygon–which is built on Aave v2–may earn above average interest on the underlying ETH positions as ETH borrowing is expected to increase ahead of the Merge. The cost of debt (or interest owed on borrowed USDC) may also increase ahead of the Merge if USDC utilization increases in both markets.
Inverse FLIs earn lending interest on USDC collateral balances and pay interest on ETH / BTC / MATIC debt. For iETH-FLI-P specifically, it is likely that costs will increase for maintaining the ETH debt position leading up to the Merge. It is worth noting though that the Inverse FLIs are native to Polygon and plug in to the Aave v2 WETH market, which has seen much less borrowing demand as of late compared to the main net WETH market.
What if icETH becomes at risk for liquidation, either by the depreciation of collateral assets like stETH or appreciation in the price of debt?
In the event that the ETH/stETH price materially deverges, there is a risk of liquidation. However, icETH is designed to automatically de-lever in this situation to protect against liquidation.
What is Index Coop?
Index Coop is a decentralized autonomous organization (DAO) that powers structured decentralized finance (DeFi) products and strategy tokens using smart contracts on the blockchain. We offer a suite of sector structured products, leverage and inverse products, and yield-generating products. We aim to create products that are simple to use, accessible to everyone and secure. Our products are built on Set Protocol, a twice-audited, self-custodial DeFi tool that allows for the creation and management of Ethereum-based (or ERC-20) tokens. Among users, partner protocols, and our composable products, Index Coop maintains one of the largest partnership networks in the DeFi ecosystem.
How to buy Index Coop products with fiat currencies:
First, you’ll need to create an Ethereum wallet like Argent, Metamask, Gemini, or Rainbow.
Next, you’ll set up your new wallet and connect your bank account.
Once you’ve deposited fiat currency in your wallet you can exchange it for Index Coop products like the
Interest Compounding ETH Index (icETH)
.
Or, you can buy Index Coop products directly via your favorite decentralized exchange or on the Index Coop App.
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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).