Through the bear market, icETH is thriving. Since its inception in March 2022, it has endured several market shocks while consistently delivering yield from leveraged liquid staking.

The Interest-compounding ETH Index (icETH) enhances the effective return of ETH staking rewards by leveraging a liquid staking strategy. Through a tumultuous bear market and sweeping upgrades to the Ethereum ecosystem, 2022 has tested icETH. Nevertheless, icETH has continued to return APYs recently ranging from 8.4% to 26.9%. If you’re interested in learning more about icETH, check out this article on icETH yield. To determine the overall APY of your icETH, use this calculator.

In this article, we’ll cover the four major events icETH has weathered since its inception in March 2022:

• ETH/stETH Depeg - May 2022

• Pre-Merge ETH borrowing crisis - September 2022

• stETH/ETH spread closing post-Merge - September 2022

• FTX/Alameda Crisis- November 2022

1. May 2022: ETH/stETH de-peg

In May, the price of Lido Staked Ether (stETH) de-pegged from Ether (ETH) following the implosion of LUNA and TerraUSD (UST). The stETH de-peg caused extensive market volatility and liquidity issues that contributed to the bankruptcy of Celsius and Three Arrows Capital.

Since stETH is a core component of icETH, icETH was impacted by the de-peg. The lower price of icETH (compared to ETH) was suboptimal for holders in the short term (before the peg was restored), but it did provide a potential arbitrage opportunity. Users could capitalize on the de-peg by buying icETH at a lower price than ETH. Once the peg was restored, users could profit from the difference between the market prices at which icETH was traded—lower during the de-peg and higher once the peg was restored.

2. Pre-Merge ETH borrowing crisis - September 2022

In early September, users looking to profit from an ETHPoW airdrop occurring in parallel with The Merge began borrowing significant amounts of ETH. The bump in the utilization rate resulted in borrowing rates to levels where icETH's ETH-stETH recursive borrowing strategy on Aave became unprofitable.

A temporary negative APY for icETH resulted from a few days leading up to The Merge. The spike in ETH borrowing costs resulted in 53 bps (0.53%) of negative yield for icETH, which was recovered in less than three weeks once ETH borrowing costs normalized post-Merge Immediately after the successful transition to proof of stake, the APY returned to positive territory and has been there ever since.

3. stETH/ETH spread closing post-Merge - September 2022

In mid-September, stETH traded at a slight discount compared to ETH due to the pause on ETH withdrawals. Starting on September 16, centralized exchanges (CEXs) paused ETH withdrawals until an undetermined time in the future. This uncertainty caused a difference in the prices of ETH and stETH, which eventually corrected.

Once again, a spread between stETH and ETH did not compromise icETH, which continued to deliver APYs upwards of 10% for the remainder of September. Similar to the stETH/ETH depeg, icETH traded at small discount, offering traders an arbitrage opportunity while performing well throughout the event.

4. FTX/Alameda Crisis - November 2022

In November, the world’s second-largest centralized exchange by volume, FTX, filed for bankruptcy. Suspicious investments involving FTX’s sister firm, Alameda Research, paid for with users’ funds led to FTX to confirm a deficit in funds over $2 billion and to pause all digital asset withdrawals. This caused negative market speculation for digital assets, driving down the price of most tokens including ETH.

icETH was unaffected by the uncertainty causing volatility in the digital asset ecosystem amidst an already-bear market. From the beginning to end of November, APYs ranged from 10% to 30%.

icETH and the Future

Having weathered four major events since its inception, icETH is well-positioned to endure future market volatility. One important upcoming event is the next major Ethereum upgrade, Shanghai, which will enable the stETH to be withdrawn for ETH at a 1:1 ratio. Expected to happen in the latter half of 2023, Shanghai will introduce updates to the EVM object format (what isolates the physical host computer from the machine code on which Ethereum runs using updated smart contracts), L2 fee reduction, and perhaps most importantly, Beacon Chain withdrawals. Before the Merge, users could stake Ethereum that would be eligible for withdrawals post-Merge. Still, they are unable to withdraw this stETH. Users are eager to regain the ability to withdraw stETH, especially during current tumultuous market conditions.

The new stETH/ETH ratio will eliminate the slight gap between stETH and ETH prices and thus also eliminate another source of icETH’s price volatility. ​​Like the Merge, the Shanghai update may encourage a bullish posture towards ETH. icETH holders may benefit from surrounding hype as it drives up the price of both ETH and icETH.

For more information on icETH’s performance, check out our Dune dashboard. Please reach out in our Discord with any questions, or learn how to buy icETH in this article.

About 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, leverage, 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 creating and managing Ethereum-based (or ERC-20) tokens. Index Coop maintains one of the most significant partnership networks in the DeFi ecosystem among users, partner protocols, and our composable products.

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 DeFi Pulse Index (DPI) or the Metaverse Index.

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