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Home Blog The general market trend is downwards. Why are Gate.io leveraged ETFs still on fire?


08 October

The general market trend is downwards. Why are Gate.io leveraged ETFs still on fire?

Author: Gate.io Observer: Hannah.H

After a tense period of global regulation, the cryptocurrency market was left cold and numb, patiently waiting for the infamous bull to rise once again! In this type of situation, despite the bearish outlook, Gate.io leveraged ETFs are expected to continue to show strength and shed light amongst the darkness. According to official data from Gate.io, on September 16, leveraged ETF holdings exceeded 100 million U.S. dollars for Gate.io users. What is behind the huge holding interest? What are the advantages of leveraged ETFs? The following article will answer these questions and give you a better insight into the recent successes of leveraged ETFs.

Use Leverage to earn more, with less

In the financial field, leverage is an investment tool that relies on borrowed funds to increase the holding of underlying assets, and thereby increasing potential returns. Investors not only invest the funds they hold, but also increase their holdings of different assets, projects or financial instruments by borrowing funds.

Leveraged trading in the crypto market is similar to leveraged trading in the traditional financial market. Depending on the risk tolerance of investors, the leverage ratio varies from level to level. The higher the leverage, the greater the risk. Leveraged ETF tokens are a leveraged product without a borrowing pool, and without having to borrow to use leverage. Leveraged ETFs correspond to spot trading. Investing in leveraged ETF products is the equivalent to automatically opening a low-leverage perpetual contract. A key difference is that there is no need to pay margin and no risk of liquidation. Leveraged ETFs have unique advantages compared to normal leveraged trading and perpetual contract trading. If investors are good at using low leverage to open positions, it is a good choice. Users can use Leveraged ETFs to earn more, with less!

Understand how leveraged multiples work to lower your risk

The real trading price of leveraged ETF products in the secondary market is correlated with the net value of the currency. However, there will be a certain price deviation from the net value during the transaction, and the deviation is often not too much. In extreme market conditions, price deviations will be magnified. The greatest innovation of leveraged ETF products is the adjustment mechanism. This ensures that leveraged ETF products can always be anchored to the value of fixed multiples There are two types of repositioning mechanisms, timed repositioning and irregular repositioning.

Timed position adjustment refers to the adjustment of positions at a fixed time to ensure that the leverage is always kept at a certain level. For example, the leveraged ETF product of Gate.io is adjusted daily at 0:00 UTC+8. In addition, in the event of great fluctuations, the system will set a threshold to prevent the contract from hedging and bursting. When the rise or fall exceeds the threshold, the temporary adjustment mechanism will be triggered. Gate.io's 3x leverage temporary adjustment rule is that when the real-time leverage exceeds 3x, it will trigger irregular rebalancing. The leverage will then be adjusted to 2.3x through the adjustment mechanism. The rule for temporary adjustment of 5x leverage is when the real-time leverage exceeds 7x, it will trigger irregular rebalancing, and the leverage will be adjusted to 5x through the adjustment mechanism.

Rebalancing mechanism

Gate.io provides leveraged ETF products for multiple mainstream currencies, which are shown as long and short depending on the direction; For example, DOT3L is a 3x bullish token for Polkadot. L is the 1634269557478652eviation of long; DOT3S is a 3x bearish token of Polkadot. S is the 1634269557478652eviation of Short. Let's take the 100USDT purchase of DOT3L as an example to describe the operating mechanism of leveraged ETFs.

If DOT3L is purchased at 100USDT and the price rises by 20%, the price of DOT3L rises. ($100 * 20% * 3 = $160). The actual leverage at this time becomes $360 / $160=2.25x, which is lower than the 3x target leverage of DOT3L. After the timing adjustment mechanism of the platform kicks in, DOT3L will start the self-balancing process, and the total leverage will once again become ($360 + $120)/ $160 = 3x.

Assuming that the price of DOT falls by 20%, the price of DOT3L falls to $300 * (1-20%)-$200 = $40 before the timing adjustment. The actual leverage at this time will become $240 / $40=6 times, which is higher than the target leverage. After the adjustment mechanism kicks in, the total leverage will again become ($240- $120)/ $40 = 3x.

When the market rises, the value of the underlying assets will increase. Leveraged tokens become an automatic compound interest system. When the market declines, the value of the underlying assets will decrease, and leveraged tokens become a batch stop loss system, with even fewer losses. This ensures that users will never face liquidation risks. However, the adjustment mechanism will cause net wear and tear. It performs better under short-term holdings and unilateral market conditions. The risk is greater under long-term holdings and volatile markets.

Gate.io leveraged ETF injects new vitality into the market

In December 2019, BTC was in the early stages of the halving. The market was volatile. The market needed a derivative that could amplify returns with a relatively low risk. Since the leveraged ETF was listed at Gate.io, it has proven to be a great success amongst traders, regardless of market conditions.

With the crypto market beginning to look cold and numb once more, Gate.io leveraged ETF products have experienced a lot of traction. Currently, Gate.io provides 3x and 5x leveraged ETFs; reverse leveraged ETFs and portfolio ETFs. Leveraged tokens of multiple mainstream currencies are provided, and nearly 30 ETF currencies have been launched in the last month.

Gate.io has been dedicated to providing users with a low-leverage, no margin, no liquidation, and relatively low-risk trading channel. The use of the automatic position adjustment mechanism lowers the user's trading risk. In the field of cryptocurrency, Gate.io ETF products are receiving more attention and injecting new vitality into the crypto market.

Gate.io Leverage ETF Science Popularization Quiz Activity: Participate in answering questions to win $5 equivalent token rewards. The activity is valid for a long time.

About Gate.io

Gate.io allows blockchain enthusiasts to trade and store assets in over 890 of the leading cryptocurrencies for over 6 million users from over 190 countries. The exchange offers spot, margin, futures and contract trading in addition to DeFi products through HipoDeFi, custodial services through Wallet.io, investments through Gate Labs and it’s dedicated GateChain platform. The company also offers a wholly integrated suite of products such as its Startup IEO platform, NFT Magic Box marketplace, crypto loans and more.

Author: Gate.io Observer: Hannah.H

*This article only represents the views of observers and does not constitute any investment advice.

*The content of this article is original and the copyright belongs to Gate.io. If you need to reprint, please indicate the author and source, otherwise legal responsibility will be pursued.

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