Leveraged tokens are financial derivatives from traditional markets that track daily price movements of assets like BTC or ETH at fixed multiples (e.g., 2x, 3x, -1x, -2x). For instance, a 1% rise in BTC’s price increases a 2x token’s NAV by 2% and a 3x token by 3%, while a -1x or -2x token falls by 1% or 2%. Managed by professionals, these tokens maintain constant leverage via dynamic futures adjustments, simplifying portfolio building for investors.

💡Risk Warning: Incorrect market direction predictions in extreme conditions may result in the NAV approaching zero.

Trading and Fees

Leveraged tokens can be bought with USDT on LBank’s token trading zone, with a process as simple as trading other digital assets. The trading fee is 0.2%, and a 0.1% daily management fee (subject to market adjustments, see trading page for details) is charged at 00:00 Hong Kong time, only for holders to cover operational costs. No management fee applies if the token is not held at settlement.

Net Asset Value (NAV) and Price

The NAV reflects the true value of a leveraged token’s fund share. As tokens trade on the secondary market, their latest price may differ from the NAV. Investors should track this gap to avoid losses from trading at a large premium or discount. If the NAV drops below 0.1 USDT, the platform consolidates shares (multiplying NAV by 10, reducing quantity to 1/10, keeping total assets unchanged) to improve price sensitivity and trading experience.

NAV Calculation Formulas:

  • Long Token NAV (e.g., BTC3L):

NVA = Previous Adjustment NAV x [ 1 + Leverage Multiple x (Latest Spot Price

 - Previous Adjustment Spot Price) / Previous Adjustment Spot Price]

  • Short Token NAV (e.g., BTC3S):

NVA = Previous Adjustment NAV x [ 1 - Leverage Multiple x (Latest Spot Price

 - Previous Adjustment Spot Price) / Previous Adjustment Spot Price]

Rebalancing Mechanism and Risk Control

Leveraged tokens avoid liquidation risks through a rebalancing mechanism:

  1. Periodic Rebalancing: Positions are adjusted every 24 hours to maintain a stable leverage ratio.

  2. Temporary Rebalancing: Triggered when the underlying asset’s price fluctuation exceeds a threshold (initially set at 15% for 3x products), adjusting the losing side (e.g., short tokens) to control risk.

💡 Risk Warning: Incorrect direction predictions in extreme market conditions may lead to the NAV approaching zero.

Comparison with Other Products

Comparison with Leveraged Spot Trading
  • No margin required, no liquidation risk.
  • Lower holding costs compared to the interest fees of leveraged spot trading.

Comparison with Futures Contracts

Similarities: Both are leveraged derivatives that amplify returns and serve as cost-effective hedging tools.

Differences：

  • No margin or liquidation risk (though NAV may approach zero in extreme conditions).
  • Fixed leverage multiple, unlike futures contracts where leverage varies with price fluctuations, potentially deviating from an investor’s risk preference. Leveraged tokens maintain constant leverage, ideal for long-term strategies.

Naming Convention

For BTC as an example:

BTC3L

BTC 3x Long

BTC3S

BTC 3x Short

Performance and Risks

Leveraged tokens are suitable for investors anticipating trending market movements and those unwilling to face liquidation risks. Below are performance examples:

Trending Market

If BTC rises 10% daily for 4 days, BTC3L yields approximately 185% (higher than 3x the spot return of 44%). If BTC falls 10% daily for 4 days, BTC3L incurs a loss of about 76% (less than 3x the spot loss of 35%).

Volatile Market

If BTC alternates between +10% and -10% for 4 days, BTC3L yields approximately -17%, underperforming 3x the spot return of -2%. If this pattern continues for 100 days, BTC3L and BTC3S yields are about -99.1%, with NAV approaching zero.

Extreme Volatility

If BTC rises 200% and then falls 200%, both BTC3L and BTC3S NAVs approach zero, potentially triggering share consolidation.

💡 Due to management fees and leverage characteristics, volatile markets may lead to significant losses. Long-term holding requires caution.

Recommendations

  1. Understand the Product: Familiarize yourself with NAV, price fluctuation mechanisms, and risks before trading.

  2. Monitor NAV Deviation: Ensure transaction prices do not significantly deviate from NAV.

  3. For How-to Steps, please refer to 「Guidelines for Beginners on Leveraged Tokens」 for detailed instructions.

Risk Warning

Leveraged tokens are high-risk derivatives. Investors should:

  1. Verify the difference between NAV and transaction price to avoid trading at a high premium.

  2. Be aware of the risk of NAV approaching zero in extreme market conditions.

  3. Assess risks carefully and allocate funds prudently.

💡 For more information, please visit LBank.