What Are Leveraged Tokens?

What Are Leveraged Tokens?

A leveraged token is essentially a fund designed to track the price movements of an underlying asset by using financial derivative instruments (such as futures) with the aim of amplifying the returns of the underlying asset. When the return of the underlying asset increases or decreases by 1%, the net value of the leveraged token will change accordingly at a rate of 1.5%, 2% or 3%. When the leverage ratio is 1, the leveraged token is effectively equal to a regular cryptocurrency.

In the traditional financial world, the underlying asset a leveraged fund is tracking is mostly a combination of multiple stock indexes. However, AscendEX’s leveraged tokens track a single crypto token as the underlying asset and multiplys the returns of the underlying asset. Take AscendEX’s leveraged tokens BTC3L and BTC3S as an example—if the BTC price increases by 1%, then BTC3L will increase by 3%, while BTC3S will decrease by 3%.

 

How Do AscendEX’s Leveraged Tokens Work?

A leveraged token is essentially a fund, so AscendEX’s leveraged tokens are effectively funds operated by professional financial teams. Each leveraged token corresponds to some futures positions. Fund operators conduct dynamic adjustments on futures positions through a rebalancing mechanism to maintain a target leverage for the net value of a leveraged token in a given time period on a daily basis. Thus, the returns of the underlying asset are amplified according to the trade.

Therefore, users do not buy the underlying assets while trading the corresponding leveraged tokens on AscendEX, but rather the net value of the leveraged tokens. The change in the target leverage of a leveraged token is reflected by the net value change of the leveraged token.

 

Main Features of AscendEX’s Leveraged Tokens:

1.     AscendEX’s leveraged tokens are a perpetual futures product carrying no expiration date. Users can buy and sell leveraged tokens at any time.

2.     Leveraged token trading is similar to crypto spot trading. Users can directly trade leveraged tokens without the need to put up any collateral and manage liquidation risks.

3.     With the rebalancing mechanism, leveraged tokens are suitable for one-sided or trending markets, where user can use the compound effect of leveraged tokens to multiply their returns.

4.     Due to the rebalancing mechanism, leveraged tokens may incur significant losses over wide market swings, so leveraged tokens are suitable for short-term hedge trading, rather than a long-term investment.

 

Risk Disclosure: As an emerging financial derivative, theoretically, there is no liquidation risks for a leveraged token. However, with incorrect trend predictions, there will be a risk that the net asset value of a leveraged token approaches 0 amid extreme market conditions. Please fully understand the rules before engaging in leveraged token trading and be cautious to reduce potential risks.

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