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Crypto Derivatives
Leveraged Tokens
About Binance Leveraged Tokens
2020-06-04 11:40
Click the video to learn what are Binance Leveraged Tokens
Binance Leveraged Tokens are tradable assets in the Binance spot market that give you leveraged exposure to the underlying asset. Unlike leveraged trading, you could get into a leveraged position without the need of having any collaterals, maintaining margin maintenance and worrying about the liquidation risk.
The first pair of Binance Leveraged Tokens is BTCUP and BTCDOWN. BTCUP allows you to generate leveraged gains when Bitcoin goes up. On the other hand, BTCDOWN allows you to generate leveraged gains when Bitcoin goes down.
Before getting started in Binance Leveraged Tokens, you must accept and agree to the terms and conditions in Binance Leveraged Token Risk Disclosure.
About the Leveraged Tokens Information
Each leveraged token represents a basket of perpetual contract positions. For example, a basket of BTCUP leveraged tokens consists of 123,456.78 contracts in BTCUSDT futures.
Net asset value (NAV) refers to the price of a leveraged token. The price of the leveraged tokens tracks the change in notional amount of the perpetual contract positions in the basket and changes in the multiples of leverage level.
Net asset value (NAV) = ((1 / Actual leverage multiplier) × Basket position × Price of underlying asset) / Issued tokens.
Unlike conventional leveraged token, Binance Leveraged Tokens do not maintain a constant leverage. Instead, Binance Leveraged Tokens maintain a constant target leverage range between 1.25x and 4x. This would maximize profitability on upswings, and minimize losses to avoid liquidation.
The true target leverage level is constantly changing and hidden from outside observation. The target leverage of the rebalance is not shown to observers or algorithms and unpredictable to reduce the vulnerability of front-running tactics. At all times, the token info page will always show the “realized” target leverage post rebalancing event.
Real leverage ratio is the actual leverage ratio held by the algorithm. Real leverage ratio changes when the ratio of futures position (notional value) to fund size.
Real Leverage Ratio = Futures Position (notional value in USDT) / Fund Size
Futures position (notional value) = Number of contracts x Price of BTCUSDT futures
Fund size = Number of tokens issued x NAV
For example, the token information of BTCUP is as follows:
  • Number of tokens issued = 10,000 BTCUP
  • NAV = 10,000 USDT
  • Basket = 18,000 BTCUSDT futures
  • Price of BTCUSDT = 10,000 USDT (the exact number is not disclosed to avoid frontrunning)
The fund size of BTCUP would be $100 million (10,000 BTCUP * 10,000 USDT). BTCUP would have a total futures position of $180 million in the basket. The real leverage ratio would be 1.8x ($180 million/$100 million).
Target leverage ratio is decided by the algorithm in case of a rebalancing event. It will always be between 1.25-4x, but the exact number will be confidential. The target leverage ratio on the token info page will be the realized target leverage post-rebalancing event. If the real leverage ratio is out of target leverage range, Binance Leveraged Tokens will rebalance to make sure the real leverage ratio is within the target leverage range.
For example, BTCUP’s initial real leverage ratio is 1.8x. When the BTCUSDT perpetual futures price moves up by another 50%, the real leverage ratio will decrease. If the real leverage ratio decreases to 1.25x and below, the algorithm will decide a new target leverage ratio and rebalance mechanism will be triggered. If the algorithm decides to bring the real leverage ratio to 1.75x (target leverage range), the algorithm will increase futures positions based on the new targeted leverage ratio predetermined by the algorithm.
Since Binance Leveraged Tokens are not forced to maintain a constant leverage, Binance Leveraged Tokens rebalance on an as-needed basis only such as during extreme market movements only. For more information, please refer to About Rebalance.
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