The Flexible Leverage Index (FLI) lets you leverage a collateralized debt position in a safe and efficient way, by abstracting its management into a simple index, reproducible by a fully-collateralized ERC20 token built on Set Protocol.
The Flexible Leverage Index (FLI, pronounced “fly”) lets you leverage a collateralized debt without having to manage a collateralized debt. The design and methodology of FLI allows for the creation of a series of new indices with target leveraged exposure to different collateral assets.
Initially proposed by Pulse Inc in December 2020, we’ve collaborated with Index Coop to produce FLI, an easier way for market participants to utilize leverage. Flexible Leverage Index enables market participants to take on leverage while minimizing the transaction costs and risks associated with maintaining collateralized debt.
Flexible Leverage Index (FLI) makes leverage effortless
If you’ve ever used leverage or legacy leveraged tokens, you probably already know how stressful the experience can be. It requires you to constantly be keeping an eye on the market and your position’s health ratio. The worry of liquidation can eat away at your attention during the day and rob you of your sleep at night. Not to mention, the expensive gas fees and slippage when you race to panic buy stablecoins to save yourself from liquidation penalties. It’s never a pleasant experience and in the end you’re left with the thought, “There has to be a better way!” And you aren’t wrong…
FLI has several key advantages over Legacy Leveraged Tokens:
- Zero slippage via composable entry and exit.
- Unique Index algorithm reduces rebalancing needs by an order of magnitude.
- Emergency deleveraging possible during Black Swan events for additional fund safety.
The Ethereum Flexible Leverage Index
The Ethereum Flexible Leverage Index (ETH2x-FLI), the first index in the Flexible Leverage Index series, provides decentralized target leveraged exposure to Ethereum (ETH). Built on Set Protocol, ETH2x-FLI is the first fully-collateralized leverage token which is redeemable for its underlying components: ETH and USDC. WBTC, LINK, and YFI are other potential candidates which we may consider for the FLI series in the future.
Initial parameters for The Ethereum Flexible 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%
As the first in the FLI series, ETH2x-FLI is the first of its kind on Ethereum: a fully collateralized leverage token, not derivative. It targets 2x leveraged exposure to ETH with a tolerance range to reduce the number of rebalances and thereby increase the gas efficiency for the end user. You can view the FLI methodology on Pulse Inc. You can learn more about the technical design of FLI and the mechanics behind leveraged tokens here.
Historically, leverage has played a big role in the DeFi ecosystem causing moments of extreme volatility which tested the limits of protocols. Aware of this precedent, FLI has been designed to handle volatility and even includes an emergency delevering mechanism for additional safety in the event of a black swan event. FLI’s fully-collateralized and redeemable also helps reduce risk and lends itself well to composability. As an ERC-20, ETH2x-FLI along with other future indices in the FLI series can be integrated into smart contracts for any number of use cases.
Pulse Inc is dedicated to creating and maintaining indices for a decentralized world. Flexible Leverage Indices combine unique index algorithm designs with the latest DeFi innovations to provide market participants with a better alternative to the traditional means of taking on leverage. By providing a safer, more efficient leverage product, we hope to spare DeFi users the expense and tolling stress of maintaining leverage and that horrible feeling of getting liquidated.