Introduce
Leveraged tokens allow you to use financial leverage without the risk of repayment . This way, you can both take advantage of financial leverage and not have to worry about managing your leveraged position. This means you don't have to manage collateral, maintain margin requirements, and of course, there's virtually no repayment risk.
Initially, the design of leveraged tokens was introduced by the derivatives exchange FTX. These tokens have been a hotly debated topic, because in the long run, they have not delivered the results users expected. In the meantime, Binance's leveraged token (BLVT) is an alternative design proposal.
If you want to learn about FTX Leveraged Tokens, read the article Beginner's Guide to FTX Leveraged Tokens.
What is Binance Leveraged Token (BLVT)?
Binance Leveraged Tokens (BLVT) are assets that can be traded on Binance's spot market. Each BLVT represents a basket of open positions in the perpetual futures market. So, BLVT is essentially a tokenized version of leveraged futures positions.
The currently available BLVTs are BTCUP and BTCDOWN. BTCUP aims to generate leveraged profits when Bitcoin price goes up, while BTCDOWN aims to generate leveraged profits when Bitcoin price goes down. This leveraged profit level can range from 1.5 to 3 times. We will discuss why it works and how to use leveraged tokens in the next section.
Currently, Binance leveraged tokens are only listed and traded directly on Binance, so you will not be able to withdraw them to your wallet. Please especially note that Binance leveraged tokens are not issued on the blockchain.
How do Binance leveraged tokens work?
One of the main differences between BLVT and other types of leveraged tokens is that BLVT is not a fixed leverage. Instead, it is a flexible form of leverage. In the case of BTCUP and BTCDOWN, the leverage range ranges from 1.5x to 3x, acting as a permanent leverage target for the tokens. The idea of this leveraged token is to maximize potential profits when prices rise and minimize debt repayment risks when prices fall.
The target of this leverage is not fixed and it is not publicly displayed. Why is this necessary? The main goal of this is to prevent front-running in investments. If these tokens rebalance at predetermined intervals, it is likely that informed traders will find a way to take advantage of the event. Since the leverage target is not fixed, tokens are not forced to rebalance unless market conditions require it. Therefore, hiding the leverage target limits unfair leverage, as traders cannot predict rebalancing events.
Leveraged tokens are traded on the Binance spot market . Additionally, they can also be easily exchanged for the value they represent. In this case, you will need to pay a conversion fee. However, in most cases, it is better to exit your position in the spot market rather than through the redemption process. Exiting capital by redemption will usually be more expensive than exiting in the spot market, unless an event like a black swan event occurs. This is why you should exit your BLVT position in the spot market.
You will see a term appear on the leveraged tokens page, called Net Asset Value. This means your leveraged tokens can be redeemed for USDT. When you redeem your tokens, the USDT you receive will be calculated as Net Asset Value.
What is the meaning of Binance leveraged token?
At the heart of the leveraged token issue that users need to be concerned about is the concept of volatility exaggeration . In simple terms, volatility exaggeration is the adverse effect that volatility has on your investments over time. The greater the volatility and time period, the more influential the impact of volatility exaggeration will be on the performance of leveraged tokens.
Leveraged tokens typically perform as you would expect when the market is favorable and market momentum is strong. However, things did not go as expected when the market went sideways. Binance created flexible leverage as a solution to this problem. BLVT only rebalances during times of extreme volatility and is not forced to rebalance periodically. While this did not completely eliminate the problem, it did significantly reduce the long-term effect of volatility exaggeration on performance when using BLVT.
What is the fee for using Binance Leveraged Tokens (BLVT)?
When you trade BLVT, you need to know the fees you will have to pay.
First, there are transaction fees. Like any other cryptocurrency like BTC, ETH or BNB; BLVT is traded on the spot market so transaction fees will apply. You can check current fees here.
You also have to pay a management fee. Remember, these tokens represent open positions in the futures market. Essentially, when you buy a leveraged token, you are buying a tokenized version of these positions. So, to keep these positions open, you will need to pay a management fee of 0.01% per day. That equates to an annual rate of 3.5%.
In addition, if you want to exit the BLVT position, there are two ways. The first way is to buy or sell tokens on the spot market. This method is very easy. The second way is that you exchange them for cryptocurrency according to the value they represent. When you redeem BLVT this way, you will be paid tokens in USDT. In this case, you must pay a redemption fee of 0.1% of your total token value.
However, it should be noted that under normal market conditions, it is better to exit your position in the spot market. This exchange mechanism is an additional way to exit positions during volatile market conditions.
Another thing to consider is transaction fees. As you know, BLVT represents open futures positions. This means that transaction fees still apply to those positions. However, you don't need to worry, as traders holding leveraged tokens do not have to pay this fee, but traders in the futures market do. However, it is still important to note that the transaction fee paid to the futures account, is reflected in the value of the BLVT.
Want to get started with cryptocurrency? Buy Bitcoin on Binance today!
How to buy and own Binance leveraged tokens
BLVT is listed on the Binance Spot Market, like other cryptocurrencies and tokens. However, you'll find them somewhere else: in the ETF tab in the Advanced trading interface . This is to avoid confusion and help you differentiate these tokens from other tradable assets.
You can also find the Leveraged Tokens page on the top bar of the Binance homepage. Or you can refer to the steps below to buy Binance leveraged tokens (BLVT).
Log in to your Binance account.
Hover over Derivatives in the top bar and select Leveraged Tokens .
Select the BLVT trading pair you want to trade.
This will take you to BLVT's landing page.
Click Buy, the interface will automatically switch to Advanced trading.
Before you begin, read the Risk Disclaimer carefully. If you are over 18 years old and agree with the statement, please tick the box and click Confirm to continue.
From now on, you will be able to trade BLVT similar to trading other coins and tokens.
For example, here is a website dedicated to BTCUP . If you have held BLVTs and want to withdraw them, you can go to this page (click the Withdraw button). You can also check your token withdrawal history there.
summary
BLVT tokens give you leveraged exposure to the price of cryptocurrencies and simplify the management of a leveraged position.
Thanks to the flexibility of leverage, BLVT tokens will operate more stably in the long term. While holding BLVT is not equivalent to holding a leveraged position, BLVT can be used to expand your trading toolkit and optimize your trading strategy.
