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Gate.io Blog

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Home Blog Gate.io Academy | Master Leveraged ETF Token

17:09

17 August

Gate.io Academy | Master Leveraged ETF Token


1.What are Gate.io Leveraged Tokens?


Gate.io Leveraged Tokens are tokens with the feature of leverage, you can find corresponding coins/tokens for all leveraged tokens.


E.g. : BTC3L stands for 3x leverage long for BTC, while BTC3S stands for 3x leverage short for BTC.


2.What are the Advantages of Gate.io Leveraged Tokens?


1) No liquidation

Although leveraged tokens are featured with leverage, they are still the spot trading type. Therefore, no matter how the price of the corresponding coin/token changes, there will never be a liquidation.


2) No requirement on margin or loans

Investors trading Gate.io Leveraged Tokens do not need to pay margin or borrow funds to try margin trade for more profits!


A dynamic rebalancing mechanism is designed for Gate.io Leveraged Tokens, which helps control risks and magnifies profits!


If investors go 3x long BTC in the margin market, when the BTC price decreases by 33%, they will face liquidations and lose all their funds. However, with the dynamic rebalancing mechanism, that tragedy will not happen. Even more, if the BTC price climbs up afterwards, the price of BTC3L will also increase, so there is still an opportunity to turn the negative profits into positive! Thanks to the mechanism, the system will automatically incorporate the profits into the original sum of investment and keep the leverage at a fixed multiple to ensure the profit is compounded.


3) Convenient operations

Buying Gate.io Leveraged Tokens bears exactly the same way as trading in the spot market. Investors shall only buy or sell those tokens in the secondary market (or subscribe or redeem in the primary market, however, it is not recommended for new users). 


3.How to profit from Gate.io Leveraged Tokens?


Investors need to judge the trend of the market. Buy when bullish and sell when bearish.


For example:

If you are optimistic towards BTC, then buy BTC3L. When BTC price rises by 1%, BTC3L also rises by 3%;

On the contrary, if you are pessimistic about BTC, then buy BTC3S. When BTC price drops by 1%, BTC3S also rises by 3%.


4. What fees will Gate.io Leveraged Tokens generate?


Under normal circumstances, leveraged token transactions will incur handling fees, sub_script_ion and redemption fees, and management fees.


However, the 0.1% daily management fee of Gate.io's ETF products already includes all costs, including contract market handling fees and funding rates, as well as loss of open market spreads.


5. What is the difference between leveraged tokens and margin trading?


1) Margin trading leverages the borrowing of funds to its margin amount to enlarge the profits or losses, the leverage is based on the amount of crypto that one holds. However, the leveraged tokens seek to magnify profits by amplifying the rise and fall of the underlying asset, and the leverage is reflected in the price changes.

2) Leveraged tokens products do not require margin or crypto borrowing, and there is no risk of liquidation.


6. What is the difference between leveraged tokens and futures trading?


1) No liquidation risks: The leveraged tokens require no margin and are without the risk of liquidation.


2) Fixed leverage: The actual leverage in the perpetual contract will change with the fluctuation of the position value. However, the leveraged tokens are rebalanced regularly every day, the leverage is fixed at a certain rate.


7. When will rebalancing take place?


Under normal circumstances, the position will be rebalanced at 0 o'clock (UTC+8) every day to ensure that the combined leverage ratio does not deviate too much from the agreed ratio.


8. Why do leveraged tokens need the rebalancing mechanism?


The rebalancing mechanism aims to adjust the position of the contract of the leveraged tokens, therefore to maintain the leverage rate.


E.g.: If user A buys BTC3L with $100, it can be seen that a long BTC position with 3x leverage (the underlying value is $300) has been opened. The next day, if the BTC price falls by 1%, then BTC3L will fall by 3%, user A then loses $3 (the underlying value is $297). Now the leverage rate is 3.06 (=297/97). In order to maintain the leverage rate at around 3, there then arises the need to adjust positions every day for the rebalancing of the underlying assets.


However, when facing sharp fluctuations, if, compared with the last rebalancing, the change of the underlying asset exceeds the given threshold (initially set to 15% for 3 times long and short), Gate.io will rebalance positions to control the risks.


Note: When under market volatility, there will be loss of net value due to the rebalancing mechanism.



Instructions of Leveraged Tokens


Video Tutorial


Understanding Leveraged ETF Token (Chapter I)

Understanding Leveraged ETF Token (Chapter II)



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