Contents
Introduction
What are Binance Leveraged Tokens (BLVT)?
How do Binance Leveraged Tokens work?
Why use Binance leveraged tokens?
What are the fees for using Binance Leveraged Tokens?
How to trade leveraged Binance tokens?
Conclusion
Introduction
Leveraged tokens allow you to amplify your position in your chosen asset, without having to worry about the risk of liquidation. This way, you can take advantage of the significant gains that a leveraged product can offer, without having to worry about position management. Simply put, you don't have to manage collateral, you take care of margin, and there is virtually no risk of liquidation.
Leveraged tokens were originally launched on FTX, a derivatives exchange. These tokens have given rise to a large number of debates, as they do not act on long-term positions like traditional leverage. Binance Leveraged Tokens (BLVT) were designed with these diverse exchanges in mind.
If you want to learn more about FTX Leveraged Tokens, check out the Beginner’s Guide to FTX Leveraged Tokens.
What are Binance Leveraged Tokens (BLVT)?
Binance Leveraged Tokens (BLVT) are tradable assets on the Binance spot market. Each BLVT represents a basket of open positions in the perpetual futures market. So, a BLVT is a tokenized version of leveraged future positions.
The first BLVTs available were BTCUP and BTCDOWN. BTCUP generates gains when the price of Bitcoin moves upwards, while BTCDOWN generates gains when the price of Bitcoin moves downwards. These leverage gains are between x1.5 and x3. In the next chapter, we will see the why and the how.
As of today, Binance Leveraged Tokens are only tradable on Binance and cannot be withdrawn from the platform. Please note that Binance leveraged tokens are not on-chain.
How do Binance Leveraged Tokens work?
One of the main differences between BLVTs and other types of leveraged tokens is that BLVTs do not attempt to maintain constant leverage. In effect, these target an interval, giving rise to a variable leverage effect. In the case of BTCUP and BTCDOWN, this is an interval between x1.5 and x3, which acts as a perpetual leverage target for the tokens. The idea is to maximize potential gains when the price rises, while decreasing liquidation risks when the price falls.
This target lever is not constant and is not visible. You're probably wondering: Why make it invisible? Well quite simply to avoid front-running. Indeed, if these tokens rebalanced according to a defined interval, it would be easy for other traders to exploit this information. Since the leverage effect is not constant, they only rebalance if market conditions require it. Hiding this leverage therefore prevents other traders from taking advantage of the information.
Leveraged tokens are tradable on the Binance spot market. Additionally, they can also be exchanged for the value they represent. In this case, you will have to pay the exchange fees. However, most of the time you will close your position from the spot market and will not have to use the exchange process. Indeed, closing through the exchange is generally more expensive than doing so through the spot market, unless a black swan event occurs. This is why it is almost always recommended to exit your BLVT position via the spot market.
On the leveraged tokens page you will see: Net Asset Value (NAV). This is simply the USDT value of your leveraged tokens. When you use the exchange feature, the amount of USDT you will get in exchange is determined by the NAV.
Why use Binance leveraged tokens?
One of the main sources of confusion around leveraged tokens is the concept of volatility drag. Simply put, volatility dampening is the detrimental effect of volatility on your investment over time. The greater the volatility and time horizon, the more visible its effects on the performance of your leveraged tokens will be.
Leveraged tokens generally perform as desired when there is a strong trend and significant momentum. This is not the case with a sideway market. The variable leverage implemented by Binance is a solution to these problems. BLVTs only rebalance during periods of extreme volatility. Although this does not completely solve the problem, this solution greatly reduces the long-term effects of drag volatility.
What are the fees when using Binance Leveraged Tokens (BLVT)?
When trading BLVT, you need to keep in mind the fees you will have to pay.
First, you must of course pay the trading fees. As BLVT is traded on the spot market like BTC, ETH or BNB, the same trading fees apply. You can check your current fee level here.
You will also have to pay the management fees. Remember that these tokens represent open future market positions. A leveraged token is nothing more and nothing less than a tokenized version of these positions. So, to keep these positions open, you will have to pay a management fee of 0.01% per day, or an annual rate of 3.5%.
Additionally, there are two ways to close your position when you own BLVT. It is possible to buy and sell tokens on the spot market, which is the simplest solution. You can also exchange these for the value they represent. When you exchange your BLVT, the value of them will be paid to you in USDT. You will have to pay redemption fee of 0.1%.
If you can, close your position from the spot market. The swap mechanism provides another way to exit your positions in exceptional market conditions.
Another thing to take into account is financing. As you now know, BLVTs represent open positions in futures contracts. This means that the financing charges apply. However, you don't have to worry about this, as these are not paid between leveraged token holders, but between futures market traders. However, it should be kept in mind that the financing fees paid on the futures account are reflected in the value of the BLTV.
Do you want to get started with cryptocurrencies? Buy Bitcoin on Binance!
How to trade leveraged Binance tokens?
BLVTs are listed on the Binance spot market like any other coins or tokens. However, you will find them in one place: under the ETF tab of the Advanced Trader interface. This avoids confusion and helps you differentiate these tokens from other tradable assets.
You will also find the Leveraged Tokens page in the top bar of the Binance homepage. The following steps describe how to buy Binance Leveraged Token (BLVT).
Log in to your Binance account.
Hover your mouse pointer over “Derivatives” and select Leveraged Tokens.
Select the BLVT trading pair you want.
You are now on the BLVT page.
Click “Buy” to access the advanced trading interface.
Before you begin, please read the Risk Warnings. If you are over 18 years old and you agree with this statement, check the box and then click “Continue”.
You can now trade BLVT in the same way as other coins or tokens.
For example, here is the page linked to BTCUP. If you already own BLVT and wish to exchange them, you can do so on this page (click on the “Exchange” button). You can also view your exchange history.
Conclusion
BLVTs allow you to benefit from leverage on a cryptocurrency without having to worry about position management.
Thanks to variable leverage, BLVTs provide more consistent performance over the long term. Although holding BLVTs is not equivalent to a leveraged position, BLVTs can be used to expand your trading tools and optimize your trading strategy.