Introduction
Leveraged tokens provide access to the price of a cryptocurrency without the risk of liquidation. So, with leveraged products, you can make more profits without having to worry about position management. This means you don't have to manage collateral or maintain margin requirements. And, of course, there is virtually no risk of liquidation.
The idea of โโleveraged tokens was originally proposed by the derivatives exchange FTX. These tokens have become the subject of controversy mainly because they don't perform as well as you'd expect over the long term. Binance Leveraged Tokens (BLVT) offer an alternative concept.
If you want to learn more about how FTX Leveraged Tokens work, read the article FTX Leveraged Tokens. Beginner's Guide.
What are Binance Leveraged Tokens (BLVT)?
Binance Leveraged Tokens (BLVT) are assets traded on the Binance Spot Market. Each BLVT represents a basket of open positions in the perpetual futures market. Thus, BLVT is a tokenized version of leveraged futures positions.
The first available BLVTs are BTCUP and BTCDOWN. BTCUP allows you to make increased profits when the price of Bitcoin rises, while BTCDOWN allows you to make increased profits when the price of Bitcoin falls. The profitability of such leveraged tokens can vary from 1.25x to 4x. In the next chapter we will discuss why this is possible and how tokens use leverage.
Currently, Binance leveraged tokens are only added and traded on Binance, you cannot withdraw them to your wallet. Please note that Binance leveraged tokens are issued off-chain.
How do Binance Leveraged Tokens work?
One of the main differences between BLVT and other types of leveraged tokens is that BLVT does not have permanent leverage. Instead, they use a variable leverage target range. In the case of BTCUP and BTCDOWN, the range is 1.25x-4x and is the target leverage.
The target shoulder is not permanent and publicly visible. Why is that? The main goal is to prevent advanced transactions. If the tokens are rebalanced at a specific time, traders will be able to take advantage of the scheduled event. Since target leverage is not constant, tokens are not rebalanced unless necessary under current market conditions. Hiding the target leverage reduces market manipulation because traders do not know the rebalancing in advance.
Leveraged tokens are traded on the Binance spot market. Additionally, they can be redeemed for the price they represent. In this case, you will need to pay a redemption fee. However, in most cases it is better to exit a position in the spot market rather than through a buyback. Exit through redemption is usually more expensive than exit on the spot market unless there is a black swan event. This is why it is almost always recommended to exit a BLVT position in the spot market.
On the leveraged token page, you will see the term โnet asset valueโ (NAV). It refers to the value of your leveraged tokens expressed in US dollars. When you redeem tokens, their dollar value is determined by the NAV.
Why Use Binance Leveraged Tokens?
One of the main sources of confusion surrounding leveraged tokens is the concept of volatility drag. In simple terms, volatility drag is the negative effect that volatility has on an investment over time. The higher the volatility and the longer the time frame, the more the drag on volatility will affect the returns of leveraged tokens.
In general, leveraged tokens perform as you would expect when there is a strong trend and high market momentum. However, this is not the case with a sideways trend. To solve this problem, Binance created variable leverage tokens. BLVTs are only rebalanced during times of extremely high volatility and do not require daily rebalancing. While variable leverage does not completely solve the problem, it does significantly reduce the long-term impact of volatility on BLVT performance.
What are the fees for using Binance Leveraged Tokens (BLVT)?
When you trade BLVT, you need to be aware of the required fees.
First, you will need to pay trading fees. Since BLVT is traded on spot markets like any other coin such as BTC, ETH or BNB, the same trading fees apply. You can check the current commission level here.
You will also need to pay management fees. Remember that these tokens represent open positions in the futures market. Essentially, when you buy a leveraged token, you are buying a tokenized version of those positions. Therefore, to keep your positions open, you will need to pay a management fee of 0.01% per day. This corresponds to an annual rate of 3.5%.
When you hold BLVT, there are two ways to exit the position. The first way is to sell tokens on the spot market. Simple enough. You can also redeem them for the value they represent. When you redeem BLVT this way, you pay the equivalent token value in USDT. In this case, you need to pay a redemption fee of 0.1% of the value of the tokens.
It's worth noting that under normal market conditions, you are better off exiting your position in the spot market. The redemption mechanism is designed as an additional way to exit a position in extreme market conditions.
Now let's look at financing. As you already know, BLVTs represent open futures positions. Therefore, financing fees apply to these positions. However, you don't have to worry about them since they are not paid by the leveraged token holders, but by traders in the futures market. However, they are worth keeping in mind because funding fees paid into the futures account are reflected in the value of BLVT.
Do you want to start using cryptocurrency? Buy Bitcoin on Binance!
How to Buy and Redeem Binance Tokens with Leverage
Like other coins and tokens, BLVT is listed on the Binance spot market. However, BLVTs are located in a different location - in the ETF tab in the advanced trading interface. This organization avoids confusion and will help you differentiate these tokens from other types of tradable assets.
You can also find the Leveraged Tokens page on the top bar of the Binance homepage. The steps below describe how to buy Binance Leveraged Tokens (BLVT).
Sign in to Binance.
Hover over the Derivatives menu item in the top bar and select Leveraged Tokens.
Select the BLVT trading pair you would like to trade.
You will be taken to the BLVT home page.
Click "Buy". You will be taken to the advanced trading interface.
Please read the Risk Warning before you begin. If you are over 18 years old and agree to the terms, check the box and click "Confirm" to continue.
You can now trade BLVT just like other coins and tokens.
For example, consider the BTCUP page. If you already have BLVT and want to redeem them, you can do so here (click the "Redeem" button). You can also check your repayment history on this page.
Conclusion
BLVT gives you exposure to the price of a cryptocurrency while minimizing the complexity of managing a leveraged position.
Thanks to variable target leverage, BLVTs are more profitable over the long term. Although holding BLVT is not equivalent to holding a leveraged position, BLVT can be used to expand your trading toolbox and optimize your trading strategy.
