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Understanding Leveraged ETF Token (Chapter I)
Gate.io
Updated at:229 days 20 hours ago

Q 1. What is leveraged ETF token?

A: Like a traditional ETF product, the leveraged ETF token tracks the rise and fall of underlying and multiply it by 3 times. Unlike traditional leveraged trading, no margin is needed when trading with a leveraged ETF. Simply sell or buy the token and you can get leveraged exposure .

Each leveraged ETF is backed by its underlying contract, which is managed by Gate.io exchange. You can easily build your own investment portfolio of a fixed leverage without understanding the detailed mechanism behind the scene.

Q2. What is the underlying asset?

A: the symbol name indicates the underlying assets. e.g. btc is the underlying asset for BTC 3L and BTC 3S.

Q3. What is the total supply of leveraged ETF token?

Similar to perpetual contracts, the leveraged ETF is a derivative, not a typical crypto token. So there is no concepts such as “total supply” or “burned quantity”, etc.

Q4. How does a leveraged ETF amplify gains or losses?

A: Leveraged ETFs amplify the rise and fall using a leverage. For example, if the BTC price rises by 5% after the position adjustment, the Net Asset Value of BTC3L rises by 15%, and BTC3S falls by 15%, without considering the scenario where unpredictable position adjustment is triggered.

Q5. What are the differences of a leveraged ETF and a typical leveraged trading?

A:

1. For leveraged trading, it amplifies profits or loss using borrowed assets. The leverage is based on the coin quantity you are holding.

For the leveraged ETF, it amplifies the rise and fall of the underlying asset. The leverage reflects on its price change percent.

2. Leveraged ETF does not need paying margin or borrowing from lenders and does not have liquidation.

Q6. What makes the leveraged ETF different from a perpetual contact product?

A: Leveraged ETF:

1. No margin, no liquidation.

2. Fixed leverage.

Perpetual contract’s effective leverage will fluctuate as the position value changes. But a leveraged ETF adjusts position every day on schedule, making the leverage pegged to 3x.

Q7. How does a leveraged ETF never been liquidated?

A: The fund manager will adjust the position from time to time, making leveraged ETF pegged to a fixed leverage within a certain period of time. If a ETF gains, position will increase after position adjustment, if losses, position will be decrease,thus eliminating the possibility of liquidation.

Note: position adjustment only applies to underlying contract position, which does not change the quantity of ETF token you are holding.

Q8: When to adjust position?

A: 3L and 3S ETF products will be adjusted at 0 ‘clock every day, UTC+8

Q9: Why management commission should be charged?

A: ETF products will hedge at perpetual contract, which cost a lot. Gate.io takes a management commission of 0.3% per day to cover all the cost, including trading commission, funding payment and frictions from price spread.

Though FTX charges 0.03% per day as management fee , it does not include trading commission, funding payment and frictions from price spread.

Up until now, management commission we charged from users can not afford the cost we actually paid, we take the loss and pay it at our own money.

Later, Gate.io will roll out combined ETFs and reverse ETFs among other products. As we continuously optimizing technology and exploring innovation, we can lower the cost further and provide more convenience and low-fee trading to users.

Q10: why no net asset value display for products ended with BULL or BEAR ?

A: The products ended with BULL or BEAR are not managed at Gate.io , so we can not provide a real time NAV displaying for them. Gate.io will de-list BULL and BEAR later. For detailed introduction of FTX production, please refer to https://help.ftx.com/hc/zh-cn/articles/360038836971

Q11. What is the net asset value (NAV)?

A: Net asset value (NAV) is the fair price of a share of underlying asset. Formula:

Net asset value at previous re-balancing point X{1+ underlying asset price change% ×target leverage}

The secondary market price of leveraged ETF token is pegged to the net asset value, with a small deviation. For example, when the net asset value of BTC3L is $1, the market price might be $1.01 or $0.09.

Gate.io displays the net asset value and the last price as well in the hope that investors can notice the deviation of the price from the net asset value.

Q12. For Gate.io’s leveraged ETF token, how can I see the “3X leverage” ?

A: The change % of leveraged ETF token is based on 3 times of the change of underlying asset, reflecting on the changes to its net asset value. For example, BTC3L and BTC3S fluctuates based on the BTC price. If BTC rises by 1% (the price at 0’clock as the initial price), the BTC 3L net asset value rises by 3% , and BTC3S net asset value decreases by 3%; If BTC falls by 1%, the BTC 3L net asset value decreases by 3% and BTC3S increases by 3%.

Q13. How to calculate the rise and fall of Gate.io’s leveraged ETF product?

A: Change % is based on the net asset value, take the intra-day change as an example

Leveraged ETF Intra-day Change % Calculation

Intra-day change of underlying

Intra-day change change of 3X leveraged token --Long

Intra-day change of 3X leveraged token-- Short


Leveraged ETF Intra-day Change % Calculation

Intra-day change of underlying

Intra-day change change of 3X leveraged token --Long

Intra-day change of 3X leveraged token-- Short

100%

300%

-94.79%

50%

150%

-81.93%

30%

90%

-66.52%

10%

30%

-30%

5%

15%

-15%

3%

9%

-9%

1%

3%

-3%

0%

0%

0%

-1%

-3%

3%

-3%

-9%

9%

-5%

-15%

15%

-10%

-30%

30%

-30

-72.57%

90%

-50%

-92%

150%

-90%

-99.98%

270%



Q14. Does Position adjustment(re-balancing mechanism) decrease or increase the quantity of the token I am holding?

A: No. It only adjust the underlying position to restore the leverage to 3X, which is done by Gate.io. The quantity of token you’re holding doesn’t change. Each time after position adjustment, the base to calculate the net asset value will change.

For example: If the net asset at the position adjustment time is $1, the net asset value at previous re balancing point is $1. And current net asset value is $1×{1+ underlying asset change% ×target leverage}. Until the next position adjustment, $1 is taken as the base. If an unpredictable position adjustment happens and the NAV becomes $0.7, then net asset value at re balancing point becomes $0.7. Thereafter, the current net asset value will be: $0.7×{1+ underlying asset change% ×target leverage}

Q15. About unpredictable position adjustment

A: In the event of repetitious rise or fall, unpredictable position adjustment will be triggered to eliminating the liquidation of the underlying contract. Before March 16, 10:00, unpredictable position adjustment would occur if the change% is 15% or larger. After March 16, 10:00, 2020, the threshold of unpredictable position adjustment has become 20% given that market fluctuates dramatically recently.




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