Starting in the fall of 2021, many protocols had to deal with the same problem: Ethereum Mainnet gas prices were soaring. This was throwing a wrench into old and new projects alike. The economic viability of many projects was in question. This left users wondering who would spend more on transaction fees than the trading notional?
At the time, Scalara was in the middle of coordinating the Flexible Leverage Indices (FLIs) roadmap in collaboration with the Index Coop and Set. FLIs are an index suite that provides 2x and -1x exposure to major tokens like ETH, MATIC and BTC. Therefore, our predication was that trading volumes would suffer significantly at high gas prices.
Related: Flexible Leverage Index is Live
One solution was to wait for bridging of FLIs to Polygon. This would allow users to benefit from the low transactions fees and fast execution that Polygon offers. Users would be able to quickly bet on rising or falling markets and only pay fractions of a cent for each trade.
We had seen the same happening with our first index, the DeFi Pulse Index, whose DPI token implementation was bridged to Polygon. This proved to be desirable as the bridged version has steadily gained more users.
Also our recently launched Scalara NFT Index is progressing in that direction. Its token implementation, NFTI, is now available on Polygon. This allows users to get access to highly-valued blue-chip NFT collections at a low cost. Scalara is spearheading the movement of making highly desirable Ethereum Mainnet NFTs accessible on Polygon.
Simple bridging was an adequate solution for DPI and NFTI as these indices are simple baskets. The composition of baskets usually changes infrequently.
But FLIs on the other hand change their composition very frequently. Periodically, the index rebalances the collateralized debt position towards its target exposure (2x or -1x respectively). However, even if bridged to Polygon, the internal rebalancing transactions would remain on Ethereum. Therefore, FLI token implementations would continue to accrue very high gas fees.
The aforementioned problem was resolved by utilizing the Polygon ecosystem. Index Coop and Set implemented the token natively on Polygon: That means that the internal rebalancing transactions are executed on Polygon. As a result the maintenance costs are cut significantly. Furthermore, lower transaction fees made it possible to improve the index methodology. One new feature was to increase the rebalancing frequency. This makes the index safer by moving away from dangerous leverage levels even more frequently. In addition, the index remains closer to its target leverage.
Related: FLIs are coming to Polygon
Explore where Scalara indices are available on Polygon to trade, mint or LP on scalara.xyz/products.
DeFi Pulse Index: Blue-chip index of leading DeFi protocols. Don’t put all your eggs in one basket.
Flexible Leverage Indices: Automated strategies for leverage and inverse exposure. Stay clear from liquidations.
Scalara NFT Index: Simple access to the well-established and highly-valued NFTs. Earn yield on top.