Differentiating the BTC2x Flexible Leverage Products

Both BTC2x products enable traders to achieve leveraged exposure to BTC and abstract collateral and debt management into a single token.

However, there are several differences between the BTC2x-FLI token on Ethereum main net and the BTC2x-FLI-P token on Polygon and it is important to know the difference if you plan on using either token in your trading strategy.

Let’s start with a valid question: Why a new token on Polygon instead of bridging the existing token from Ethereum?

Cross-chain Arbitrage

FLI products differ from the Index Coop’s composite indices in that they rebalance on a daily basis, and even multiple times a day on occasion. Because rebalancing occurs frequently, it is not uncommon for a token’s NAV to slightly deviate from the market price, which is when arbitrageurs intervene and synchronize both values. This process is almost instantaneous and token holders benefit from the NAV / price parity brought about by arbitrage; however, high gas fees necessitate a larger spread between NAV and price in order to incentivize arbitrageurs.

Bridging BTC2x-FLI tokens to Polygon complicates this process and risks NAV dislocation. Consider a scenario where the market price on Polygon exceeds the NAV on Ethereum main net. Arbitrageurs would have to navigate the bridge between and account for the 7-8 minutes it takes to move assets between the two chains, which is a tremendous risk for operators that are accustomed to settlement times denominated in seconds.

Because of this constraint, it is imperative to keep the respective markets and rebalancing on the same layer so that token holders are not negatively affected by NAV and price disparity. Another major benefit of rebalancing natively on Polygon is that gas costs will be trivial compared to rebalancing on main net, which greatly improves BTC2x-FLI-P’s economic model.

Issuance and Redemption

Compared to the composite indices, there is a much higher volume of mint and redeem transactions on the FLI tokens. When users go to mint or redeem BTC2x-FLI on the main net, they are indirectly interfacing with Compound, the borrowing/lending protocol built into the product’s back end. Because Compound is only deployed on Ethereum main net, there is no way for users to mint or redeem BTC2x-FLI within the Polygon ecosystem; instead, they would have to bridge their assets back to main net to obtain the token’s underlying assets, which would be cost prohibitive because of gas fees for many users.

Additional Differences

In addition to being native to different networks, BTC2x-FLI and BTC2x-FLI-P have several different parameters.

• Borrowing / Lending Protocol: BTC2x-FLI on main net integrates with Compound for creating and maintaining leverage, while BTC2x-FLI-P uses Aave Polygon for the same function.

• Rebalance Interval: because of the high fee environment on main net, BTC2x-FLI is programmed to rebalance every 24 hours; conversely, because of the low fee environment on Polygon, BTC2x-FLI-P is programmed to rebalance every 4 hours, which allows the token to track the 2.0x target leverage ratio more closely and reduce the risk of large de-leveraging trades at times of high volatility.

• Recentering Speed: because the Rebalance Interval is much more frequent for BTC2x-FLI-P than its counterpart, the Recentering Speed has been reduced in an effort to minimize implicit costs incurred when trading against DEXs.

Visit this resource for more information on FLI parameters.

Conclusion

Although there are differences between the two BTC2x tokens, both products simplify leverage and reduce liquidation risk on behalf of their users, regardless of network preference. Token holders on ethereum main net can continue using BTC2x-FLI as they always have, and more fee-sensitive users can capture the same benefits with BTC2x-FLI-P on Polygon.

More Resources

• BTC2x-FLI-P (Polygon)

• Token Contract: 0xd6cA869a4EC9eD2C7E618062Cdc45306d8dBBc14

• Buy BTC2x-FLI-P thru Slingshot

• Mint BTC2x-FLI-P on TokenSets

• BTC2x-FLI (Ethereum)

• Token Contract: 0x0B498ff89709d3838a063f1dFA463091F9801c2b

• Buy BTC2x-FLI

• Mint BTC2x-FLI on TokenSets

• Introducing the 2x and Inverse BTC Flexible Leverage Indices on Polygon

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