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Understanding How FLI Products Perform
Understanding How FLI Products Perform
Today you can use FLI tokens to access double (2x) exposure on a number of popular cryptocurrencies, while greatly reducing the risk and complexity usually associated with leveraged trading. While there are inherent risks associated with using these pr...
8/5/2021
Index Coop
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Flexible Leverage Index (FLI) Products
Flexible Leverage Index products are tradable ERC-20 tokens that aim to generate leveraged exposure to the underlying asset.
Today you can use FLI tokens to access double (2x) exposure on a number of popular cryptocurrencies, while greatly reducing the risk and complexity usually associated with leveraged trading. While there are inherent risks associated with using these products, they perform remarkably well in the right circumstances. This post deals with when FLI products will perform at their best and how investors can take advantage of their features.
FLI tokens perform best in a positive market move
FLI tokens are very responsive to momentum. They are designed to amplify the price action of the underlying asset through the use of leverage. Traders can benefit from using FLI tokens when they are confident that there is strong potential for growth in the near future. ETH2x-FLI targets a 2x return on the price change in ETH. It is helpful to look at some real world data to understand how FLI can benefit from momentum in the market. Between March 26th and May 12th 2021, the price of ETH increased by 251%. During the same period, ETH2x-FLI increased by 535%. By investing in FLI during this period, a trader would have experienced a 2.13x premium over holding ETH during that time.
Warning: If you have yet to realize a profit in FLI Tokens you are at risk of mean reversion
Mean Reversion is a theory in finance that suggests that prices will eventually return to their long-run average. When using a leveraged product such as a FLI token, a change in momentum to the downside can be just as powerful as the positive movement shown above. Taking a slightly longer view of the same time period, we can see that the same position taken in ETH2x-FLI lost much of its value in just a few days as the price of ETH returned to the long-run average in May. Investors in FLI who are yet to realize gains should be aware of the impact that a reversion to the mean price of the underlying can have on their holdings.
FLI tokens will avoid liquidation in a negative market move
FLI tokens will perform well when you need to reduce risk by delevering quickly. Holding a standard leveraged position during a downturn can lead to much greater loss of capital than just holding the underlying. If you are unable to provide the extra collateral required, you are at risk of liquidation. FLI tokens help to reduce much of this risk by automatically delevering your position during a price drop in the underlying asset.
To see this process in action, let’s take a closer look at the price drop during May 2021. Between May 16th and May 24th, the price of ETH fell by 48%. During this period, many billions of dollars worth of leveraged positions were liquidated. During the same period, the price of ETH2x-FLI fell by 72% — or about 1.5 times further than the drop in ETH. However, if you held a position in FLI during this time, you would not have been liquidated.
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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).