Interest Compounding ETH Index (icETH)

Overview

The Interest Compounding ETH Index (icETH) multiplies staking returns using a leveraged liquid staking strategy. Built on Set’s battle-tested leverage token infrastructure, icETH multiplies the staking rewards for Lido stETH while minimizing transaction costs and risk associated with maintaining a collateralized debt position on Aave or other lending protocols. Token holders maintain price exposure to ETH and amplify staking returns up to 2.5x.

Methodology

icETH methodology aims to give token holders leveraged exposure to Ethereum staking rewards, with automated leverage management that reduces the risk and the effort required to manually manage a leveraged position. The icETH token is deployed to mainnet Ethereum. In execution, stETH is deposited to Aave to use as collateral to borrow ETH. This ETH is exchanged for additional stETH which is also deposited back into Aave to create the leveraged position. While stETH staking yield is greater than the cost to borrow ETH on Aave, the strategy is profitable in ETH terms. Fluctuations of the stETH:ETH conversion rate can also influence profitability.

Initial Parameters:

  • Underlying Asset: stETH

  • Borrow Asset: WETH

  • DeFi Lending Protocol: Aave v2

  • Target Leverage Ratio: 2.75x

  • Maximum Leverage Ratio: 3.0x

  • Minimum Leverage Ratio: 2.5x

  • Rebalance Interval: LR < 2.5x or > 3.0x

  • Recentering Speed: 100%

Token Inclusion Criteria:

icETH will be composed of, and limited to, astETH and awETH tokens.

Composition:‍

astETH : ~275% awETH(debt) : (~175%) icETH is implemented using a leverage strategy built on the Token Sets protocol.

Maintenance

Rebalancing

Because of the high correlation / low currency risk of the underlying assets, this index will only rebalance when the leverage ratio moves outside of the safe range defined above. This should lead to minimal rebalancing on a recurring basis and lower operating costs on Ethereum main net, as well as minimal NAV decay due to rebalancing slippage. Based on prevailing staking and borrow rates, automated rebalancing would occur once every 4-6 months.

These parameters may be revised closer to launch. Post-launch, the Product Pod will monitor and manage these parameters and publicly communicate any material changes 24 hours before executing said changes. An example would be updating the LR parameters if borrowing conditions within Aave change drastically, requiring a winding down of the debt position to maintain an acceptable yield.

Actions

Changes to any of the Leverage Ratio parameters can be made at any time via IIP to improve or protect the integrity of the product.

Fees

0.75% Streaming | 0.00% Mint | 0.00% Redeem

Technical Implementation

Contract

Description

BaseManagerV2

used to operate, rebalance, and update contracts connected to the product; product-specific contract

AaveLeverageModule

used to initiate and manage collateralized debt positions in Aave v2; protocol-wide contract

AaveLeverageStrategyExtension

connects the product to the Aave Leverage Module and stores methodology settings; product-specific contract

DebtIssuanceModuleV2

used to issue and redeem units of the product token; protocol-wide contract

StreamingFeeModule

used to charge and update fees on the product; protocol-wide contract

FeeSplitExtension

connects the product to the Streaming Fee Module;

product-specific contract

Risks

The following risks may apply to this digital asset: full or partial loss of digital assets due to technical hacks, exploits, or failures that may occur at the protocol or smart contract level of a product’s infrastructure; restrictions placed on the digital assets by regulatory authorities in the end users region; loss of digital assets or loss of access to the digital assets due to decisions made by centralized providers of the underlying assets; full or partial loss of digital assets through standard product operations which can be hampered by unexpected market conditions; full or partial loss of digital assets due to changes to underlying product assets made by the originating protocols; full or partial loss of digital assets due to volatility, correlation, value at risk, and contagion risks; underperformance of digital assets due to deviation from intended methodology; full or partial loss of digital assets due to the variability and potential volatility of the yield source.

Additional Resources

Contact Us

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