In order to provide a better trading experience for Binance users, some Leveraged Tokens will undergo a reverse token split process under certain circumstances. Binance will announce the arrangements for reverse token splits prior to the effective time.
What is a reverse token split?
A reverse token split is a process that consolidates the existing number of issued tokens into a smaller number of proportionally more valuable tokens. When extreme market fluctuations decrease the value of a token, a reverse token split often happens so as to boost the token’s liquidity and price. Reverse splits are not an entirely new financial concept, it sometimes occurs in traditional securities too, such as stocks.
Example
For example, Binance announced that YFIDOWN will undergo a 10,000-for-1 reverse token split on 1 May, this means that every 10,000 YFIDOWN tokens will be consolidated into 1 YFIDOWN token after 1 May.
If users hold YFIDOWN tokens after the reverse token split, Binance will consolidate these tokens at a ratio of 10,000 YFIDOWN (before the reverse split) = 1 YFIDOWN (after the reverse split). The YFIDOWN token balance will be updated after the process is complete. Due to unit limitations, the new YFIDOWN balance can only be updated up to 8 decimal places.
Based on the reverse split ratio of 10,000:1, if the total number of issued YFIDOWN tokens before the reverse token split is 100 billion, the total number of issued YFIDOWN tokens after the process will be 10 million. Therefore, if a user holds 1,000,000 YFIDOWN tokens before the 10,000-for-1 reverse token split, he will end up holding 100 YFIDOWN tokens afterward.
Important Notes:
- During the reverse token split process, changes in the token’s net asset value (NAV) might be reflected on the token’s NAV chart, e.g. the YFIDOWN NAV chart.
- Please note that the token’s NAV might experience errors or display incorrectly during the reverse token split process. If the token moves drastically during the reverse split token, its NAV might deviate more than expected.
- Binance strongly recommends users reassess their holding risks before the reverse token split to mitigate against the price fluctuations that may occur during the process. You are also advised to trade or redeem your tokens before the reverse token split starts. For more information, please refer to What Are Binance Leveraged Tokens.