We're Upgrading hyETH with Morpho

Overview

The Index Coop has partnered with Gauntlet to upgrade The High Yield ETH Index from Index Protocol to a purpose-built Morpho Vault. This migration will significantly reduce issuances costs for users while increasing scalability, risk-adjusted returns, and growth potential.

No action is required and the product will continue to function the same for end users. The hyETH token built on Index Protocol will act as a wrapper around the Morpho Vault, allowing any incentives distributed to the vault to be compounded back into the product, boosting the returns for users. Users can continue to issue, redeem, and monitor their hyETH via the Index Coop App as usual.

The annual fee of 0.95% on hyETH is being eliminated in favor of a performance fee of 20% on the gross yield generated by the vault. To ease the transition, all hyETH fees will be waived until April 2025.

Why migrate hyETH?

The High Yield ETH Index launched last year after an overwhelmingly positive pre-sale that hit its target threshold within the first 24 hours of opening. Since then, it has consistently provided hundreds of users diversified exposure to high ETH yielding opportunities on Ethereum Mainnet, peaking at nearly $20m in TVL. 

However, ongoing challenges with issuance and redemption costs, and a substantially altered landscape of available yields in DeFi, have invited a re-examination of how to best structure hyETH to accomplish its goal of targeting top risk-adjusted yields on ETH. 

After careful analysis, it became clear that migrating to a single Gauntlet-managed Morpho Vault would strike the correct balance of flexibility, performance, and security assurances. Gauntlet was chosen for its deep track record in DeFi risk management, while Morpho stands out as one of the fastest growing permissionless lending primitives in the space.

What’s changing?

The primary differences in what this means for hyETH are as follows:

Methodology

• The original methodology is still largely relevant, with Gauntlet now acting as the risk manager allocating between Morpho WETH market asset pairs such as: Pendle PTs, LSTs, LRTs, and non-ETH-correlated blue chips.
• Users can expect dynamic allocations (as per Gauntlet's risk models and performance opportunities) vs what were historically monthly rebalances
• The 60% cap to any one protocol is removed and there will no longer be five equal 20% allocations. If beneficial, Gauntlet can allocate to over five assets, which was previously capped due to issuance costs.
• A fully updated methodology may be viewed on the hyETH product page

Costs and Fees

• Issuance costs are reduced as flashminting hyETH will now effectively deposit WETH to one Morpho Vault, rather than multiple swaps for the old underlying components. Gas costs are significantly reduced and intrinsic swap fees are completely removed.
• The product’s fees are being updated from an annual streaming fee to a dynamic performance fee of 20%, which responds as market yield fluctuates. This ensures that users don’t end up paying a disproportionate fee in periods of lower available yields
  • If the gross yield on hyETH is 10%, fees will be 2%, meaning 8% net yield for the holder.
  • If the gross yield on ETH is 3%, fees will be 0.6%, meaning 2.4% net yield for the holder.
• The performance fee is only charged on the underlying yield. NOT on any additional yield generated from re-invested incentives

Learn more

• What are Morpho Vaults?
• Learn more about how Gauntlet manages risk for DeFi protocol.