How to Maximize Crypto Exposure with Index Coop's Automated Leverage Tokens

This week, we dive into automated leverage tokens by Index Coop—a powerful tool for gaining exposure to ETH or BTC without worrying about liquidations or funding rates. If you're looking to amplify your crypto exposure while keeping things low maintenance, these tokens might be the perfect solution.

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What Are Automated Leverage Tokens?

Leverage tokens are fully collateralized products that allow greater exposure to assets like ETH and BTC by tracking target leverage ratios and automatically rebalancing as prices fluctuate. Built on the Index Protocol and integrated with lending/borrowing markets like Aave, these tokens simplify the complex world of leveraged trading.

How Do They Work?

• Long Tokens (2x, 3x):
  These tokens use collateral such as WETH or WBTC to borrow USDC, swap it for more of the underlying asset (ETH or BTC), and redeposit into Aave until the desired leverage is reached.

• Short Tokens (-1x):
  Short products follow a similar looping mechanism, but in reverse. They use USDC as collateral to borrow WETH or WBTC, sell it for more USDC, and repeat the process.

Both long and short tokens rebalance their leverage ratios within predefined bounds, which prevents extreme changes and protects users from liquidation risks. This automatic rebalancing ensures a hands-off experience compared to managing perpetual futures (perps) manually.

How Leverage Tokens Perform

The value of these tokens moves proportionally to the performance of the underlying asset, based on the leverage factor:

• If ETH increases by 10%, a 3x Long ETH token would increase by 30%, while a 2x Long ETH token rises by 20%.

• Conversely, a -1x Inverse ETH token would drop by 10% in the same scenario.

These tokens are available across Ethereum Mainnet and Arbitrum, with ETH2x currently the most popular, holding over $18.6M in liquidity.

Why Leverage Tokens Outperform Perps

While perpetual futures are widely used for leveraged trading, they come with the burden of funding rates—periodic payments between long and short traders to keep contract prices aligned with the spot market. Funding rates fluctuate with market demand, often rising during periods of heavy activity. In contrast:

• Leverage tokens use collateralized lending through protocols like Aave, where users are only subject to interest rates on borrowed assets.

• The total borrowing cost for leverage tokens is referred to as the “cost of carry” which tends to remain much lower than funding rates during volatile markets.

This distinction makes leverage tokens particularly attractive when demand for leverage increases, as funding rates for perps can spike. For example, the ETH2x token from Index Coop—despite including a 3.65% annual streaming fee—often maintains a lower net cost of carry than equivalent perps on leading exchanges.

Fees and Costs to Keep in Mind

Index Coop charges the following annual streaming fees, based on leverage level:

• -1x and 2x products: 3.65%

• 3x products: 5.48%

• Additionally, issuance and redemption fees of 0.10% apply to all tokens.

How to Get Started with BTC2X or ETH2X on Ethereum Mainnet or Arbitrum

To take advantage of these tokens, you can easily swap for BTC2X or ETH2X on the Ethereum Mainnet, where liquidity is most abundant. This provides a simple way to increase your exposure to BTC or ETH without the complexities of managing leverage manually.

Before we get started, this is never a recommendation or endorsement to buy any token(s) mentioned, and here’s a few risks to consider:

• Smart contract risk in Index Protocol

• Front-end spoof attack on the app frontend

• Oracle risks with underlying AMMs like Aave

• Full or partial loss of assets due to price volatility (you lose more with leverage tokens vs holding the underlying when the market moves against you)

• An economic design exploit

• Colluding signers on any multisig

• Lack of liquidity to swap out of leverage tokens, if you’re a Restricted Person (ie US citizen) and hence not able to use the Index Coop frontend

1. First, I go to the Index Coop app here. Assuming I’ll buy the Ethereum Mainnet token for BTC2X, I’ll choose up top BTC and for Network, Ethereum Mainnet. Currently BTC2X is available on Ethereum Mainnet or Arbitrum vs ETH2X is on Mainnet, Arbitrum, and Base.

2. Assuming I have WBTC or another supported token below, I’ll specify how much I want to swap and the app will route me to the best available liquidity whether it means swapping for tokens in the open market or actually minting new leverage tokens. I can follow the prompts to approve and deposit/swap (2 transactions). 

3. Lastly, I can just sit back and monitor the price of my BTC2X tokens in any portfolio tracker such as Zerion. When I’m ready to exit these in the future, I can return to the same Index Coop app to swap out of these tokens!

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