Gate.io Blog Why do leveraged tokens need to reverse split?

Why do leveraged tokens need to reverse split?

30 March 11:33

The crypto leveraged token markets are traded 24/7 and can be affected by the great fluctuations of the market. Typically when the price gets too low for leveraged tokens, Gate.io may announce a reverse split to bring the price back up to a more “tradable” level and increase liquidity. A reverse token split is a process that consolidates the existing number of issued tokens into a smaller number of proportionally more valuable tokens.

Specifically, when the leveraged token price is too low, to prevent having any adverse effect on users' trading experience, Gate.io will undergo a reverse split on that leveraged token. The exact price that triggers the reverse token split might vary depending on the market condition.

Let me give you one example. Based on the ratio of the 1-for-100 reverse split of DASH3L, if the price of DASH3L is 0.005 USDT and a user holds 1000 DASH3L before the reverse split, the user will end up holding 5 USDT each after the reverse split. The total value of the DASH3L held by the user will not change and remain 5USDT before or after the reverse split.

On Gate.io, there will be an official announcement on every reverse split. Before the reverse split, Gate.io will temporarily suspend service of trading on leveraged tokens, and cancel the pending orders if there is any. Investors can pay attention to the announcements for details of leveraged token reverse splits. After the reverse split is completed, Gate.io will resume these leveraged token's trading service. Please be noted the price will fluctuate around the new unit value after the split. Therefore, investors should be careful when placing their orders. After the reverse split, the candlestick chart will have a leap and you may use split-adjusted functionalities to get a smoother chart.

If you have a leveraged token in your portfolio that has announced a reverse split, it helps to work through the math to understand how it will affect the total value of your positions and portfolio investing strategy. Before making any leveraged token trades or purchases, you might want to look back at the token's history to see if they have ever reverse split. The split is not the necessarily reason for you to buy or not buy a leveraged token, but it gives you an extra piece of information about the token itself when you're analyzing it for value.

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Why do leveraged tokens need to reverse split?

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