Index Coop Leverage Suite FAQ

The Index Coop leverage suite is a collection of eight leverage tokens. This article includes answers to some of the most frequently asked questions regarding Index Coop leverage tokens.

Contents

• Overview
• Getting Started with the Leverage Suite
• Costs and Fees
• Risks
• ARB Rewards
• Disclaimers

Overview

What products are included in the Index Coop leverage suite? 

The Index Coop Leverage Suite is a portfolio of leverage products and tokens that includes 

On Arbitrum 

• Ethereum 3x Leverage Index (ETH3x)
• Ethereum 2x Leverage Index (ETH2x)
• Inverse Ethereum Index (iETH1x)
• Bitcoin 3x Leverage Index (BTC3x)
• Bitcoin 2x Leverage Index (BTC2x)
• Inverse Bitcoin Index (iBTC1x)

On Mainnet 

• Ethereum 2x Leverage Index (ETH2x)
• Bitcoin 2x Leverage Index (BTC2x)

The leverage suite products are built on Index Protocol, and utilise Aave V3.

What benefits does the Leverage Suite offer?

The Leverage Suite unlocks several benefits for traders, including:

• A Streamlined Trading Experience: For Arbitrum leverage products, the Leverage Interface provides a user-friendly platform for leveraging ETH and BTC, helping to reduce complexity often associated with obtaining leverage.
• Liquidation Protection: All the leverage products include built-in protection mechanisms that help minimise liquidation risks, providing traders with greater peace of mind.
• Low Costs and Fees: The fees for all the leverage products are straightforward and easy to understand, avoiding the hidden or confusing fees often found on other platforms. In addition to being transparent, the costs of leverage tokens will generally be substantially lower than comparable solutions in most situations.

Who can purchase Index Coop leverage products? 

The leverage suite is available to all unrestricted users (to learn more about which users are restricted and which are unrestricted visit the Tokens Restricted for Restricted Persons page.)

Are leverage tokens similar to perpetual futures (perps)? 

Both leverage tokens and perps offer a way for users to amplify their exposure to an asset. However, leverage tokens differ from perps in their collateral structure. 

Perps allow traders to speculate on asset prices without directly holding the underlying asset, using collateral (often WETH, WBTC, or stablecoins) to open long or short positions with leverage. Traders must maintain sufficient margin to avoid liquidation if the market moves against them.

Leverage tokens are fully collateralized by the underlying asset. For example, the ETH3x product supplies WETH to Aave, borrows USDC, and swaps it for more WETH. This looping process is repeated until the desired leverage is achieved, creating an overcollateralized debt position directly tied to the underlying asset’s value. 

All Index Coop leverage tokens adjust real-time leverage ratios through rebalancing within defined bounds. This automated rebalancing enables liquidation protection and creates a hands-off experience for users. 

Leverage tokens can also be substantially cheaper than perps because the borrow rates on Aave can often be significantly lower than the typical funding rates on perp platforms.

Getting Started with the Leverage Suite

How can I buy a leverage token?‍

Unrestricted users can purchase Index Coop leverage products on Arbitrum via the Leverage Interface in the Index Coop App. 

Start by selecting a market via the dropdown in the quickstats widget or in the trade widget, then select your desired Leverage amount using the -1x, 2x, or 3x buttons. Now select your input token from the ‘you pay’ dropdown menu. 

You will have to connect your wallet and sign our terms and conditions before your first action. Make sure you are connected to Arbitrum and that you have sufficient funds in your wallet including ETH to pay the gas for the transaction. Then you can input the desired amount of input token and click ‘Swap’.

For leverage tokens on Mainnet, you can purchase via the Index Coop App swap widget. 

How do I sell a leverage token?

For leverage tokens on Arbitrum, you can exit, or sell, by first selecting ETH or BTC, selecting “Sell” at the top of the trade widget, and then selecting the corresponding leverage ratio of your currently open position. You should see your total balance and be able to input the amount of your tokens you want to sell.

For leverage tokens on Mainnet, you can sell via the Index Coop App swap widget. 

How do I track my performance?

You can check the value of your tokens via the Index Coop Leverage Interface. Click on “Sell” and you can see the value of your tokens in ETH, wBTC or stablecoins.

Alternatively, you can use the Leverage Token Wallet Performance Tracker set up on Dune to track the historical performance of your position.

Is there liquidation risk?

Every token in the Index Coop Leverage Suite automatically rebalances the underlying collateralized debt positions on Aave v3 to avoid liquidation during volatile periods. Redundant keeper systems monitor the current leverage ratio for each token at all times and trigger a rebalance if it exceeds the maximum leverage ratio. 

Another layer of protection is enabled by the ripcord system, which allows anyone to trigger a rebalance if the current leverage ratio exceeds a predefined ripcord leverage ratio; there is also a 0.25 ETH reward, funded by Index Coop, for anyone who triggers a ripcord rebalance.

I’m having trouble buying or selling a token. What can I do?

If you are having difficulty selling your leverage tokens via that Index Coop app, double check the following: 

• If you are attempting to sell a leverage token on Arbitrum, ensure that you are connected to Arbitrum.
• Are you a restricted person? Keep in mind that restricted persons are not permitted to buy or sell Index Coop restricted tokens for restricted persons. 
• Have you signed the terms and conditions? Submitting transactions will not be possible if you have not signed the terms and conditions.
• Has the token you’re trying to mint reached its supply cap?

If you are unable to troubleshoot your transaction, you can open a chat via the support widget in the bottom right corner of the screen to receive more support from our team.

Best Practices for using leverage tokens?

How long should I hold leverage tokens?

There is no specific amount of time users should or should not hold leverage tokens. However, typically speaking, leverage products are not designed for long term holding. You can gain a basic understanding of the factors impacting some leverage token performance from our article on how ETH2x performs in different market conditions. 

The main factors that will impact leverage token performance include, tracking error, volatility drift, rebalancing overheads as well as costs and fees compounding over time. 

Users should frequently monitor their token holding and take time to fully understand how the products work and are expected to behave in different market environments. 

Leverage Tokens on Ethereum Mainnet vs Arbitrum

How do I trade on Ethereum? 

There are currently two Index Coop leverage tokens on Ethereum mainnet: ETH2x and BTC 2x. These are available to buy and sell via our swap widget on the Index Coop app.  

Can I swap directly from Mainnet leverage tokens to Arbitrum leverage tokens? 

No, direct swaps between Mainnet and Arbitrum leverage tokens are not possible. While similar versions of ETH2x and BTC2x tokens exist on both Ethereum Mainnet and Arbitrum, each network hosts distinct token contracts . Therefore, tokens bridged directly from Ethereum to Arbitrum will not be compatible with the Arbitrum Leverage Interface. 

To transition your holdings from Mainnet to Arbitrum, you must first sell or redeem your Mainnet leverage tokens, transfer your capital to Arbitrum, and then purchase the corresponding tokens on Arbitrum. This will ensure your tokens are functional and compatible with the respective network.

Will ARB rewards apply to users who bridge 2X tokens from Ethereum mainnet?

No, ARB rewards only apply to users of the new tokens on Arbitrum! Bridging 2x tokens from Ethereum mainnet to Arbitrum is not a recommended activity and we recommend users looking to migrate follow the steps in the question above.

Bridging rewards only apply to DPI and MVI and are unrelated to the Leverage Suite.

Costs and Fees 

What are the costs and fees for Index Coop Leverage positions?

Index Coop charges annual fees based on the type of product: 1x and 2x products incur a 3.65% fee, while 3x products carry a 5.48% fee. Additionally, all products are subject to issuance and redemption fees of 0.10%. 

Costs associated with utilising assets within Aave involve the concept of "Cost of Carry," wherein assets deposited accrue interest from borrowers. This results in a spread between the interest earned from deposits and the interest paid for the debt. For example, if ETH2x deposits $1,000 of WETH and borrows $500 of USDC, where ETH deposits earn +2% APY and borrowing USDC costs -5% APY, the resulting net Cost of Carry is -1% APY, leading to a slight reduction in the position's value over time. This Cost of Carry may vary, sometimes favourably and sometimes unfavourably for users, depending on fluctuating borrowing and deposit rates, necessitating regular monitoring via the app.

Regarding rebalancing costs, while Index Coop itself doesn't impose charges, swapping assets through DEX pools incur small fees paid to liquidity providers, such as the 0.05% swap fee in Uni v3 WETH/USDC pools. Moreover, swaps also entail "price impact," wherein larger swaps lead to higher overall prices paid for buys or lower overall prices received for sells, thus gradually reducing the net value of the position over time.

Are there any front-end fees for trading leverage tokens at app.indexcoop.com?

No, the Index Coop App does not currently charge any fees. All fees are charged at the smart contract level.

Risks 

What technical risks should users be aware of?

Index Coop leverage tokens are built on Index Protocol, which has been audited extensively; that said, smart contract risk still exists for Index Protocol. Leverage tokens also rely on protocol-level integrations with Aave V3, Uniswap V3, and Chainlink, which have individualised smart contract and oracle risks that must be considered.

As composable platforms, these protocols are essential to manage and rebalance underlying collateralized debt positions. If supply caps are reached or utilisation rates are high in Aave V3, re-levering or redeeming leverage tokens may not be possible. If there is insufficient liquidity for ETH, WBTC, or USDC on Uniswap V3, then volatility drift could be exacerbated. If Chainlink oracles failed to update price data appropriately, leverage tokens would be at risk of liquidation as keeper bots may not be able to respond to price fluctuations.

What is Volatility Drift?

Volatility drift refers to how the value of a leverage position can decrease over time, failing to deliver the expected multiple implied by the leverage ratio, especially in highly volatile markets. It is an umbrella term for the performance decay leverage products incur over time due to several different factors.  

It is important to note that any product targeting a persistent leverage ratio will suffer from price decay and this is not something unique to Index Coop products. If you’re interested in learning more about Volatility Drift, see this article from The Index Coop.

Will Volatility Drift differ for Arbitrum leverage tokens vs the mainnet versions?

Drift will be similar on the 2x and inverse -1x products, however 3x will experience more decay due to the high leverage ratio and wider absolute bounds.

Can I still sell my tokens if Index Coop closes down?

In the unlikely event Index Coop decides to deprecate leverage tokens in the future or disband the DAO entirely, leverage tokens will be de-levered to the point where only the collateral asset will remain (either WETH, WBTC, or USDC). Users will be able to redeem their tokens for the underlying collateral at this stage and for perpetuity. Redemptions would be available in the Index Coop App and a guide for smart-contract-level redemptions would be made available if the app was ever taken offline.

Any decisions to deprecate the products (or disband the DAO) would be subject to an $INDEX token vote, and users would be notified through all official Index Coop channels well in advance.

ARB Rewards  

So there are ARB rewards?

Yes! The Index Coop was granted 165,500 ARB as part of The Arbitrum DAO’s Long Term Incentives Pilot Program (aka LTIPP). 

A total of 52,100 ARB is specifically allocated to incentivise early users of the new leverage tokens. All wallets holding any of the six products in the Leverage Suite will qualify to receive 2 basis points per day on their positions in ARB during the incentive period. 

This reward structure was chosen to enable anyone to hold these products fee-free for the duration of the incentive period. 

How can traders earn ARB rewards?

All wallets holding an Index Coop automated leverage token on Arbitrum during the incentive period will be eligible to earn ARB rewards.

• Each day at 00:00 UTC, we will calculate the balance of users’ positions in USD. 
• Each user will receive 0.02% of their position back in ARB, using the value of ARB in USD at the time.
• Rewards earned will be available to claim via Merkl at the end of the 12 week incentive period. Index Coop will publicly communicate detailed claiming instructions at the end of the incentive period.

The allocated rewards will be first come first serve and depending on demand and TVL could potentially be exhausted before the end of the incentive period.

How can I track my rewards?

Users can track their rewards via this Dune Dashboard.

How long is the incentive period?

The incentives will run for a twelve week period following the launch of the leverage products on May 29th. 

Restrictions and Disclaimers

Is the Leverage Suite available to US Persons?

No, restricted tokens from Index Coop are not available for Restricted Persons as outlined here

Why do I see a “Not available for Restricted Persons” message?

The Leverage Suite is unavailable to Restricted Persons as defined in our Tokens Restricted for Restricted persons page.

You shall not purchase or otherwise acquire our restricted token products if you are: a citizen, resident (tax or otherwise), and/or green card holder, incorporated in, owned or controlled by a person or entity in, located in, or have a registered office or principal place of business in the U.S. (defined as a U.S. person), or if you are a person in any jurisdiction in which such offer, sale, and/or purchase of any of our token products is unlawful, prohibited, or unauthorised (together with U.S. persons, a “Restricted Person”).

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