Meet the Bear, DeFi’s first-ever Leveraged Inverse Token powered by derivatives! The Bear is completely on-chain and custodial-less, tradable on Uniswap and Sushiswap. It sources exposures through DEX perpetual contracts and uses a continuous (non-fixed) rebalancing mechanism to provide the most accurate leveraged index tracking, the highest leverage and the lowest fee.
The Bear will launch with 3 tokens, the BTC Bear -5x, ETH Bear -5x, and the DeFi Bear -5x. Whether you want to hedge or speculate against market downturns, the Bear is your pal. He will give you the exact leverage predictably, tell you exactly how it works without the dramas of margins, leverage, and liquidation.
The Bear’s Differentiators
Inverse Exposure Simplified
The Bear gets its inverse exposure through DEX perpetual futures contracts that settle on Ethereum layer-2. Compared with Index Coop’s FLI series, which get exposures by holding the underlying tokens and rebalance on the layer-1 spot market, the Bear’s Layer-2 perpetual contract method saves significant amounts of gas fee in rebalancing. This methodology enables not only much more frequent rebalancing for ultra-accurate index tracking, but also significant cost reduction for the users.
Currently, DyDx runs DEX’s biggest layer-2 perpetual futures markets, with cumulative volume over $4.6 billion since its inception in Feb 2021, and a $200 million daily volume in recent days. The Bear takes advantage of DEX derivatives’ rise and transfers accurate inverse exposures to users looking to hedge or speculate against bear markets.
Straightforward Rebalancing
The biggest problem with leverage tokens today is that no one understands them. Contrary to other leverage tokens that use a variable target leverage range, the Bear uses fixed leverage mandated by the token. This is achieved through continuous rebalancing throughout the day, as opposed to daily rebalancing at a fixed time, which kills the token’s return in zigzag markets. The whole point of using a leverage token is to get the leverage promised throughout the duration of holding the token. We understand the pain of not getting the leveraged upside when markets go up, but getting the promised leveraged downside when markets go down.
The only time that the Bear deviates from target leverage is when markets move significantly against us, triggering a liquidation protection de-leveraging. However, when the market goes for us, the Bear would re-leverage back to the target ratio. Read the ZOO Doc for the specific definition of safety margin within-depth examples. The Bear also does not seek to reinvest winning and over leverage its exposures, as doing so infers the arbitrary view that trends would continue, and would deviate from the Inverse Token’s objective of accurately tracking the index. To summarize, the Bear will always make the mandated leverage when the market goes for it, and will always lose less than the mandated leverage when the market goes against it. This predictable design makes the Bear a near perfect hedging vehicle for market downturns.
How does the Bear Work?
The Bear essentially runs a margin trading account on derivative DEX. When users mint a Bear token to their wallet, the Bear uses the funds to open a perpetual futures position that gets the mandated leveraged exposures. The margin account’s Net Asset Value (NAV) is the Bear’s NAV, and users can monitor it live in the Bear Den, together with live leverage exposure, margin ratio, safety margin to liquidation, and etc. When users redeem the Bear token to the original token, the Bear sells the portion owed and sends the funds back to your wallet according to the token’s current value. Mint and redemption happen in IndexZoo by directly interacting with the Habitat Protocol. In fact, they are the functions that keep Bear’s price in check with NAV on secondary markets such as Uniswap and Sushiswap.
The Bear’s value is settled in USDC, but you may choose USDC, DAI, or ETH for mint and redemption. As users mint and redeem, the Bear’s target exposure fluctuates, and its main task is to manage the short positions to meet the target, therefore always providing accurate tracking. A full breakdown example is in the ZOO Doc here.
The Low-latency Habitat Protocol
Since the Bear is trading layer-2 derivatives, timing is everything. Everything the Bear does is under IndexZoo’s Habitat Protocol, which connects to DEXes via low-latency API, monitors intra-second bid/ask order book feeds (DyDx uses an order book), and always gets the best price when needed. This is of particular value when the market is highly volatile because Habitat Protocol will be able to de-leverage before price gaps away from current level.
Where to Get the Bear?
Users can mint/redeem the Bear token at IndexZoo. Unlike other tokens, this is the recommended method for getting the Bear, as Habitat Protocol always maintains the book value of the Bear at IndexZoo. Users will know how much Bear to receive and at what price when minting, hence its the most slippage efficient method.
All IndexZoo tokens are ERC-20 compliant. Therefore, users can also buy the Bear token on secondary exchanges like Uniswap and Sushiswap, which will be subject to DEX transaction fees and slippage. Users can always take the Bear back to the ZOO for redemption.
What are the Fees?
IndexZoo charges a 0.1% fee on mint or redemption. There is also a 0.01% daily management fee to cover rebalancing costs and perpetual futures funding costs. Fees are taken out of the NAV of the Bear, which means users will not see a token balance decrease or USDC charge in their accounts.
ZOO is launched as a DAO at the get-go, and ZOO’s profit will be 100% distributed to the ZooKeepers, aka the IZO token holders. IZO is ZOO’s governance token, and ZooKeepers will also decide how the ZOO runs in the future.
Launching Tokens
The Bear will launch with 3 tokens, the BTC Bear -5x, ETH Bear -5x, and the DeFi Bear -5x. The Bear BTC and ETH inverse tokens are straightforward: tracking the leveraged inverse return of a single indexed asset. The DeFi Bear -5x token, on the other hand, shorts the entire DeFi market. Just like the popular DeFi Pulse Index (DPI), which tracks the long return of top DeFi tokens in a market capitalization-weighted pool, IndexZoo’s DeFi short token tracks inverse return of it in a similar weighting fashion. Refer to the ZOO Doc for more details.
IndexZoo’s ultimate goal is to open the Habitat protocol to users and create permission-less inverse tokens for any basket of cryptos with any leverage. Therefore, users can create customized hedging or speculation solutions for each individual wallet, because smart investment tools like this are what we believe DeFi is all about.
Want a close up experience with the Bear? Visit the Bear Den at IndexZoo.com today!
