![]() ![]() Users can buy or sell ETH 2x FLI on Uniswap and enjoy standard gas costs like any other ERC20 tokens. To facilitate the trading experience, ETH 2x FLI/ETH liquidity pools are created on Uniswap. This minting and the redeeming process can be overwhelming for less sophisticated traders and can be expensive in terms of gas, especially on Ethereum. When redeeming the ETH 2x FLI token, the reverse process will happen, as opposed to minting or issuing. Then it will deposit the ETH back to Compound and replicate the borrowing and purchasing procedure, in order to double the ETH exposure for the portfolio. Then, with the deposited ETH as collateral, the protocol will borrow USDC and trade the USDC for additional ETH on Dexes like Uniswap. In order to get the ETH 2x FLI token holders leveraged, the protocol starts by getting the deposited ETH into lending protocols like Compound and converting it into CETH. The design of a leverage range target is to lower the frequency of rebalancing, which is more expensive on Ethereum and decreases the ‘mathematical surprise’ to the financial performance. The ETH 2x FLI aims to maintain a leverage level within a range between 1.7–2.3x. Let’s take a look at the creation process with the ETH 2x FLI leveraged token as an example. When the FLI tokens are bought, they are traded on the secondary market on Uniswap. When the FLI tokens are issued, they are created by the contract. ![]() The FLI tokens can be issued or bought from the market. In order to guarantee such leverages, Set Protocol is collaborating with Compound, one of the top DeFi lending protocols, to borrow assets to get and rebalance targeted leverages. Model MechanismsĪs mentioned above, currently live on Tokensets, there are leveraged tokens representing a 2x long position on the underlying assets, which are often regarded as “Bull Tokens”. Now there are BTC 2x and ETH 2x FLI live on Set Protocol on Ethereum, which means the holders of the tokens can have approximately 2x long leveraged exposure on BTC and ETH. ![]() It is performing like a tokenized index, tracking 2x leveraged exposure on the underlying assets. The leveraged token model of Set Protocol is called FLI, short for Flexible Leveraged Index. Others can follow or replicate the same exposure on the baskets of assets by simply buying and holding the set tokens. Asset managers create their own strategies for crypto-asset exposures and the Set Protocol will package them into ERC20 tokens. ![]() Set Protocol (or Tokensets) is a DeFi asset management platform, currently live on Ethereum and Polygon. In this paper, we review three models of Decentralized Leveraged Tokens live on the market, including Set Protocol, Tracer and Phoenix Finance, and compares the differences in the modelling.įor a deeper understanding of the DeFi leveraged token model, please refer to previous articles here and here. Since this model, once reproduced on-chain, makes the leveraged tokens decentralized, we can refer to the product as Decentralized Leveraged Tokens. Token holders do not need to worry about actively managing a leveraged position, borrowing, or being liquidated. Leveraged tokens are derivatives giving holders stable leveraged exposure to crypto-assets. ![]()
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