What is Rebalance?
Rebalance is a process where the leveraged tokens increase or decrease the futures positions in the underlying asset to achieve the target leverage. As the price of its underlying asset goes up, it will take on more positions. Likewise, if prices go down, it will reduce positions.
About Binance Leveraged Tokens Rebalancing Mechanism
Binance Leveraged Tokens (BLVTs) rebalance on an as-needed basis only. BLVTs are designed to maximize its correlation with the underlying asset and be unpredictable in rebalance to reduce the vulnerability of front-running tactics. Unlike conventional leveraged tokens (not managed by Binance), Binance Leveraged Tokens do not maintain a constant leverage ratio. Instead, Binance Leveraged Tokens maintain a variable target leverage and only rebalance during extreme market movements.
The rebalancing of positions of Binance Leveraged Tokens is governed by Binance’s proprietary algorithms. The rebalancing mechanism is designed to protect its users from the long-term detrimental impact of traditional Leveraged Tokens while maintaining the key characteristics of a leveraged product, which allows users to gain leveraged futures positions without worrying about liquidation risk and the nitty-gritty of managing a leveraged position.
How Binance Leveraged Tokens Rebalance?
Binance Leveraged Tokens have a range of target leverage, from 1.5x to 3x. The true target leverage level is constantly changing and hidden from outside observation. Both the timing of the rebalance, and the target leverage of the rebalance, is not shown to observers or algorithms, making it much harder to guess future trades and front-running it. At all times, the token info page will always show the “realized” target leverage post rebalancing event.
When the real leverage level is out of the target leverage range (1.5x - 3x), Binance Leveraged Tokens will rebalance to maintain within the target leverage range. The rebalancing information such as change in basket and leverage level will be displayed in the Binance Leveraged Tokens page after the leveraged tokens rebalance. Users will also see a history of all rebalancing events on the page mentioned earlier.
When the perpetual futures price goes up, the real leverage level will decrease. If the real leverage level drops to 1.5x and below, Binance Leveraged Tokens will rebalance. The algorithm will purchase additional positions to increase the real leverage level so the real leverage level is within the target leverage range. The rebalancing works the other way around when the price goes down.
The example below illustrates how the rebalancing mechanism works when the perpetual futures price goes up: