What is the Ethereum Flexible Leverage Index?

Ethereum Flexible Leverage Index makes leverage effortless and enables market participants to take on leverage while minimizing the transaction costs and associated risks while maintaining the collateralized debt.

What is Ethereum Flexible Leverage Index (ETH2x-FLI)?

The Ethereum Flexible Leverage Index (ETH2x-FLI) is developed by Index Coop. FLI is a token that allows traders to gain leveraged exposure to Ethereum (ETH) in a flexible and automated way.

• This index reduces the transaction costs and risks associated with maintaining collateralized debt.
• ETH2x-FLI is a new and innovative way for investors to gain exposure to Ethereum while minimizing their risk.
• It is a fully decentralized investment tool, meaning that investors have full control over their investments and can easily buy and sell the index without the need for a middleman.

Ethereum Flexible Leverage Index (ETH2x-FLI) tracks only the price of Ethereum (ETH) and underlying tokens such as cETH & USDC provide traders with leveraged exposure to ETH.

Objectives of the Ethereum Leverage Index

The Ethereum Flexible Leverage Index (FLI) is built using a smart contract that uses data from Oracle to monitor the price of ETH and calculate the leverage ratio. The ETH2x-FLI index uses a flexible leverage strategy, meaning it automatically adjusts its leverage based on market volatility. When the market is stable, the index maintains a lower level of leverage, but as volatility increases, it will automatically increase its leverage. This strategy allows users to benefit from both upward and downward price movements of Ethereum.

This Ethereum Flexible Leverage Index (FLI) works by automatically adjusting its leverage based on ETH’s volatility.

1. When ETH experiences high volatility, the FLI reduces its leverage to avoid liquidation. 
2. When ETH experiences low volatility, the FLI increases its leverage to maximize returns.

Initial Parameters for Ethereum Leverage Index

• Underlying Asset: ETH
• Target Leverage Ratio: 2
• DeFi Lending Protocol: Compound
• Maximum Leverage Ratio: 2.3
• Minimum Leverage Ratio: 1.7
• Recentering Speed: 5%

Terms Related to Ethereum Leverage Index

• Borrow Rate: The borrow rate is the cost of the ETH asset and borrowing it under the DeFi Lending Protocol over the latest epoch.
• Epoch Length: Epoch Length is the time between rebalancing which is the cost to borrow the asset under the DeFi Lending Protocol
• Target Leverage Ratio (TLR): Target Leverage Ratio is the long-term target for the ratio between the value of assets held by the index and the value of the debt it holds.
• Current Leverage Ratio (CLR): The Current Leverage Ratio is calculated by dividing the index’s current asset value by the index’s current debt value.
• Maximum Leverage Ratio (MAXLR): MAXLR is the ETH2x-FLI’s highest leverage ratio. The index will be the highest after a rebalance.
• Re-centering Speed (RS): In order to return to the Target Leverage Ratio, the Re-centering Speed is the rate at which the Current Leverage Ratio is adjusted each period. It occurs when the index is not adjusted back to either the Maximum Leverage Ratio or the Minimum Leverage Ratio.

Formula for Index Price and Current Leveler Ration for the period:

Index price:

FLIt = FLIt-1 * (1 + ((Pricet/Pricet-1–1) * CLRt-1 — (BorrowRatet * (CLRt-1 -1)/CLRt-1)))

Current Lever Ratio for the period:

FLIt = FLIt-1 * (1 + ((Pricet/Pricet-1–1) * CLRt-1 — (BorrowRatet * (CLRt-1 -1)/CLRt-1)))

Benefits of Ethereum Leverage Index

Below are the benefits of the Ethereum Leverage Index:

1. Flexibility: The Flexible Leverage Index (FLI) provides a flexible way for traders to gain leveraged exposure to Ethereum (ETH).
2. Increased Exposure: FLI allows traders to gain increased exposure to ETH without managing their own leverage. This is also useful for inexperienced traders or those who don’t have the time or expertise to actively manage their positions.
3. Automated Index: The Flexible Leverage Index automatically adjusts leverage based on ETH volatility, reducing leverage during high volatility and increasing it during low volatility. FLI is fully automated and doesn’t require active management.
4. Maximum Returns: It offers investors the opportunity to maximize returns with increased leverage.