How to earn additional yield by minting icETH tokens and LPing

Cormac Daly

Apr 5 | 3 min read

The Index Coop is excited to announce the launch of its first yield product - Interest Compounding ETH ($icETH)!
icETH provides an enhanced yield on ETH using a leverage liquid staking strategy built on Set Protocol. Within Aave v2, icETH deposits Lido’s liquid staked Ethereum token—stETH—as collateral and recursively borrows ETH to procure more stETH. As a result, token holders have spot exposure to ETH and nearly twice the yield compared to simply holding stETH. It is worth noting that the effective yield for icETH is variable and subject to staking rates and borrowing costs.

icETH Maximized Yield

Allocating a portion of a portfolio to icETH is an option for those who want price exposure to ETH, as well as a maximized yield on their holdings. The use of leverage enables a real return (leveraged staking return minus cost to borrow) of around 3x the return of an unlevered stETH position.

Because of the extremely high correlation between the price of icETH and ETH, providing liquidity for that pair is at limited risk of impermanent loss. In this situation, holders who wish to earn additional income on the icETH position can LP the token against WETH to earn trading fees on their position. This position avoids any risk of impermanent loss, and is solely exposed to the price volatility of ETH.

Minting on the Index Coop App UI

It is now extremely easy to mint your own icETH tokens through the Index Coop UI. Start by connecting your web3 wallet and selecting Ethereum Network on the Index Coop UI.

You can trade ETH, DAI or USDC to buy a token. The app can make direct purchases on a DEX like Uniswap or else mint new tokens depending on what is most cost effective for the customer. The app will figure out the best method for your purchase at the time. A smaller purchase of a couple of ETH will be best executed on a DEX.

For a larger purchase, a DEX transaction might not be the most cost effective way to purchase icETH. In these situations, the app will mint the customer a new icETH token by creating a leveraged stETH position on Aave.

Earning LP fees with Arrakis

Arrakis is an ERC20 wrapper around Uniswap v3 LP positions, that makes them fungible and auto-compounds the earned fees into the pool. You can think of Arrakis as making non-fungible and non-compounding Uniswap v3 LP positions similar to Uniswap v2 positions which were fungible and featured auto compounding. In practice, using a Arrakis pool is a simplified experience for providing LP capital to a DEX.

As icETH is pegged to ETH, providing liquidity for an icETH-ETH pair enables icETH holders to earn an additional yield on their icETH position while minimizing the risk of impermanent loss, or the loss of value a LP token holder experiences when the price of one asset rises faster than the other. Because the two assets are so tightly correlated in price, the Arrakis pool uses an extremely tight range of 0.99 to 1.02 icETH/ETH. This range will provide extremely high returns for any LPS. To add liquidity, first go to the Arrakis interface and approve both tokens.

You will next be prompted to add liquidity and create your position. Current APY on the pool is ~ 4.15%

Disclaimer: This content is for informational purposes only and should not be construed as legal, tax, investment, financial, or other advice.

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Information is for educational and illustrative purposes only. The Index Cooperative is not engaged in the business of the offer, sale or trading of securities and does not provide legal, tax, or investment advice. Cryptocurrencies and other digital assets are speculative and involve a substantial degree of risk, including the risk of complete loss. There can be no assurance that any cryptocurrency, token, coin, or other crypto asset will be viable, liquid, or solvent.No Index Cooperative communication is intended to imply that any digital assets are low-risk or risk-free. The Index Cooperative works hard to provide accurate information on this website, but cannot guarantee all content is correct, complete, or updated.

How to earn additional yield by minting icETH tokens and LPing

Cormac Daly

icETH Maximized Yield

Allocating a portion of a portfolio to icETH is an option for those who want price exposure to ETH, as well as a maximized yield on their holdings. The use of leverage enables a real return (leveraged staking return minus cost to borrow) of around 3x the return of an unlevered stETH position.

Minting on the Index Coop App UI

Earning LP fees with Arrakis

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