Stop Throwing Away Your Gains: Index Coop Leverage Tokens Can Be 5x Cheaper than Perps

*stats use median benchmarks from Q2 2024 when onchain trading was at peak popularity this year

Leverage trading has long been a go-to strategy for crypto traders seeking to amplify their gains, but it often comes at a hidden cost—one that eats away at profits without traders even realizing it. Perpetual futures (perps), a popular leverage tool, have become notorious for opaque and fluctuating funding fees that can quietly siphon off a staggering portion of traders’ returns. In fact, over a 14-day period, traders using 3x leverage on ETH perps paid, on average, 37.5% of their profits in fees—compared to just 7.5% for users of Index Coop’s ETH3x token.

The Index Coop Leverage Suite offers 2x, 3x, and inverse leverage tokens for both ETH and BTC, with built-in liquidation protection and far lower fees than perpetual futures. Available on Ethereum mainnet, Arbitrum, and Base, these tokens simplify leverage trading by utilizing decentralized finance (DeFi) protocols like Aave V3, allowing users to seamlessly enter and manage leveraged positions without the complexity or cost of traditional trading platforms.Instead of using complex trading platforms, users can access leverage directly through DeFi, where the process is automated, the fees are predictable, and the risk of liquidation is significantly reduced.

Fee Comparison

Perpetual exchanges and leverage tokens have different fee structures to maintain their operations and balance market positions. Perpetual exchanges, such as GMX, primarily rely on funding rates to balance long and short positions. These rates can be volatile and expensive, potentially having a significant impact on traders' profitability. In addition to funding rates, these exchanges typically charge fees for opening and closing positions, usually ranging from 0.05% to 0.07% of the position size. Borrowing fees are also applied to leveraged positions and can vary based on market demand.

Index Coop’s leverage tokens utilize a different fee structure. Instead of funding rates, they employ a Cost of Carry mechanism, which tends to be lower and less volatile. These products charge issuance and redemption fees, typically around 0.1% of the Net Asset Value (NAV) and a streaming fee, an annual charge on the NAV that varies based on the leverage (e.g., 3.65%, or 1 basis point per day, for 2x tokens, and 5.48% for 3x tokens). When creating or closing positions, leverage tokens incur DEX swap fees, which can range from 0.05% to 0.1% of the NAV, depending on the leverage.

The biggest difference between the two fee structures is in the difference between funding rates and cost of carry. The funding rate is a mechanism to keep the futures price inline with the spot price. When there is a lot of long future demand (i.e., traders think the price will go up), there is a large funding payment made by long traders to short traders to incentivize the skew to be balanced. The funding rate is usually quoted hourly or on an 8-hour cadence which makes it opaque to traders, but when annualised these rates can be very high. The funding rate is paid on the position size so an annualised funding rate of 10% on a 3x position will cost the trade 30% annualised.

The cost of carry on the other hand is determined by the supply rates and borrow rates in the lending market. Leverage tokens are tokenised lending positions that have automated rebalancing. For example, an ETH2x of $100 will have collateral of $200 in ETH and $100 in USDC debt. The cost of carry is then a function of the supply rate earned by the ETH collateral and the borrow rate paid on the USDC debt. If, for example, ETH was earning a 3% supply rate and USDC was paying a 7% borrow rate, then the net interest cost – cost of carry – is 1%. This is because there is $200 of ETH earning 3% and only $100 of USDC paying 7%. It is possible for the cost of carry to actually be negative — in such cases traders’ positions will actually be earning yield instead of paying interest.

Buy Index Coop’s ETH3x token now and pay up to 5x less in fees compared to perps: Start trading

Cost Advantages in Practice

Next, let’s dive deeper into how these fees play out in real trading scenarios. For traders who use low levels of leverage, say 2x or 3x, there is a significant cost advantage to using leverage tokens versus perps. This advantage becomes more pronounced the longer the position is held open. The primary reason for this is the cost of funding payments which tend to be much higher and more volatile than the cost of carry.

The average annualised funding rate and cost of carry over the period from March, 2024 to September, 2024 is as follows:

*Note, that this is an average of funding rates from GMXv1, Kwenta, and HMX adjusted to reflect a 2x and 3x position respectively.

The chart above shows the fees paid as a percentage of profit earned on a 3x trade where the price of ETH rose by 5% over the period. Even in very short term trading (24 hours), there is a slight benefit to using leverage tokens as compared to perps. The fixed costs of trading – fees paid to open and close positions – are relatively similar. But, the longer the position is held for, the more advantageous leverage tokens are in terms of fees. This is because the variable costs of trading are much less on leverage tokens compared to perps. The variable costs in this context are the funding rate and borrow rate, and the streaming fee and cost of carry.

In this example, the trader using a 3x long ETH perp would have paid 22.2% of their profits in fees compared to the leverage token trader who held Index Coop’s ETH3x and paid only 9.1%.

This difference can be even more stark during periods of extreme volatility, such as was the case during May 2024. In the next example, we will look at a 2x long perp position versus ETH2x in a period where there is a lot of demand for leverage. Note as well, that when a lot of people are wanting to take out leverage is probably the same time that you will want to take out leverage! So, while this may seem like an extreme example, it’s actually quite common.

In the data above, the highest 7-day moving average for funding rates on a 2x position was April 1, 2024 reaching a whopping 128.09% while the cost of carry plus streaming fee would have been only 15.88%.

Unsurprisingly, perp traders get absolutely crushed by fees during exactly the same periods that they want to leverage long. In this example, the price of ETH goes up by 5% and so traders would have been directionally correct. Since this is 2x position, the traders would have expected to make a gross profit of 10%. However, if the perp trader had held for 14 days in these conditions, they would have paid 51.6% of their profits to fees. And, this means that they would have made a net gain of 4.84% which means that the trader who took out leverage using a perp made less money than they would have simply holding spot ETH. The leverage token trader on the other hand, would have only paid 9.24% of their profits to fees and would have had a gain of 9.1%. In other words, they would have made almost double the amount of money as the perp trader.

Conclusion

Leverage trading in crypto often comes with a hidden price tag, and most perps traders are simply unaware of just how much they’re giving away in fees. As shown in the data, fees can quietly consume a significant portion of profits without users even realizing it. The unpredictable funding rates and opaque fee structures leave traders with far less than they bargained for.

Index Coop’s Leverage Suite provides a clear and more profitable alternative. With built-in liquidation protection, automated DeFi-powered leverage, and fees that are a fraction of what perpetual futures traders are paying, these tokens offer a smarter, more efficient way to trade. With Index Coop’s Leverage Suite, you can keep more of your gains and enjoy a simplified, transparent experience. Your profits shouldn’t be eaten up by fees — let them work for you instead.

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Disclaimer:

This content is for informational purposes only and is not legal, tax, investment, financial, or other advice. You should not take, or refrain from taking, any action based on any information contained herein, or any other information that we make available at any time, including blog posts, data, articles, links to third-party content, discord content, news feeds, tutorials, tweets, and videos. Before you make any financial, legal, technical, or other decisions, you should seek independent professional advice from a licensed and qualified individual in the area for which such advice would be appropriate. This information is not intended to be comprehensive or address all aspects of Index or its products. There is additional documentation on Index’s website about the functioning of Index Coop, and its ecosystem and community.

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