When you start trading in the crypto market, many gainful opportunities start unfolding in front of you. A leveraged token is one such opportunity if you know how to deal with it.
Leveraged tokens are used to boost the returns of underlying assets. Traders can use leverage to the price of a cryptocurrency without facing the risk of liquidation.
The Binance Leveraged Tokens (BLVT) however has redefined leverage tokens. These tokens, as the name suggests, are offered by the Binance crypto exchange, which was founded in 2017.
Binance Leverage Tokens (BLVTs) were devised to deal with the issues users faced while trading with traditional Leveraged Tokens.
What are Binance leveraged tokens?
These are tradable assets available for you in the spot market on Binance. Each Binance Leverage Token is a bunch of open positions that you can trade on the perpetual futures market.
At the present, BLVTs are offered in two types: BTCDOWN and BTCUP.
BTCUP helps you earn leveraged profits at the point where the Bitcoin price displays upward movement, while BTCDOWN creates leveraged profits where the Bitcoin price shows a downward movement.
At the moment, BLVTs are listed and can be traded directly on Binance only and you won’t be able to withdraw them to your own wallet.
How do Binance leveraged tokens work?
When you are on Binance, trading BLVTs, you do not have to worry about margin maintenance and the liquidation risk. But this does not mean that the Binance Leveraged Tokens is not completely risk-free.
However, there is always a way to gain positively from trading and Binance helps you in gaining maximum from every trade by offering features such as real-time market details and lower fees.
You can follow the below-given steps and start trading BLVTs.
Open an account with Binance using your email ID or mobile number and the unique password you have set. Once you make an account, Binance lets you log in through QR codes too, to make the login faster and easier.
Once logged in, you visit the Binance homepage and select “Derivatives”. In the drop-down, you will find “Leveraged Tokens” which will take you to the Leveraged Tokens page.
You can also select “Zones” and go to “ETF” on the Classic Trading page to view the available Leveraged Token trading pairs.
Binance makes sure you are aware of the platform and the trading procedures before you start the actual trading. Hence, Binance offers the Leveraged Token tutorial video as a crucial step before the actual trading.
After watching the video, you can participate in a quiz by clicking “Start Quiz” to submit your answers.
The next step is where you have to read and agree to the Leveraged Tokens Risk Disclosure. You must read all the points mentioned in the agreement in order to protect you and your investments from any unwanted disputes.
You click on the “Confirm” button after reading the terms and begging the trading Leveraged Tokens.
Once these steps are covered, you are ready to start the actual trade. You do not have to worry about spending time learning how your dashboard works as the user interface of the Binance platform is smooth and simple.
You can proceed with your trades the same way you do while trading crypto in the spot market. The more you learn and stay updated, the more you know how to gain the maximum from every position you open.
Binance leveraged tokens rebalance
Rebalance is where the leveraged tokens cause an increment or decrease in the futures positions to meet the target leverage. If the price of the underlying asset shows upward movement, it will take on more positions and vis versa.
As far as BLVTs are concerned, they are specifically created to increase the underlying asset correlation and help decrease the risk exposure of front-running tactics. BLVTs do not keep a constant leverage ratio and rebalance during intense market movements only.
BLVTs offer a range of target leverage from 1.5x to 3x. And the real target leverage level changes regularly. If the leverage level does not match the target leverage range, these tokens rebalance to stay within the range of 1.5x to 3x.
You can see data such as a change in basket and leverage level after the tokens are rebalanced. You can also see a history of all rebalancing occurrences on the dashboard page.
However, Binance does not show the timing of the rebalance and the target leverage of the rebalance to observers or algorithms. This makes it hard to guess future trades.
Binance Leveraged Tokens limit
Binance has recently announced its new limit which is 20 times leverage. The limit has come down from 100 times. This limit was imposed on July 19 in 2021. The exchange said it has made changes in the interest of customer protection.
Binance leveraged tokens fees
One of the crucial factors of any trading decision is the fees you have to pay in order to perform the trade. When you’re trading in BLVTs, you must know that they are traded on spot markets just like BTC, or BNB, and hence the same trading fees are applied.
Talking about fees, you will have to know about the management fees too.
Leverage tokens represent open positions and you are buying a tokenized version of these positions when you buy a leveraged token. In order to keep these positions open, you’ll pay Binance a management fee of 0.01% per day. Which goes to 3.5%/year.
You will have to pay a redemption fee too if you redeem these tokens for the value they represent (rather than selling them on the spot market). You will get this value in USDT, along with a redemption fee of 0.1% on the value of your tokens.
When you redeem your BLVTs through this process, you’ll get the value of your tokens paid in USDT. In this case, you’d have to pay a redemption fee of 0.1% on the value of your tokens.
Risks & Benefits Of Leveraged Tokens
When you open any trade or position in the market, you expose yourself to certain risks and advantages. The same is applicable to the leverage token holders too.
If you wish to deal in leverage tokens or hold any leverage tokens, you must keep in mind the following benefits and risks.
Benefits of leverage tokens
1. Variable vs Fixed Leverage
At the moment, one of the most popular LT products in the market promises a consistent 3x leverage. This means you can potentially gain triple returns on the underlying asset.
This means, if BTC appreciates by 5%, the LT will create a 15% return to users.
However, there is another factor named Volatility drag that has to be considered here.
It is the long-term impact that volatility has on the investment. The more volatility and the longer the time period, the more severe the impact.
BLVTs are created to decrease the impact of volatility drag by maintaining variable target leverage.
BLVTs are less impacted in side-ways markets and perform better with market momentum.
Another benefit of leverage tokens is that they increase or decrease their exposure in the underlying asset to gain the target leverage. Traditional leverage tokens must be rebalanced every day.
As they are predictable in rebalance, they are exposed to front-running. Regular traders and arbitrageurs can predict the incoming trades.
On the other hand, BLVTs rebalance only when your losses are extreme. BLVTs will rebalance the positions to increase profitability on upswings, minimize losses and avoid liquidation.
This means, BLVTs will not get rebalanced by usual market fluctuations and the correlation of the token value will be maintained with the value of its underlying asset.
3. Market Liquidity
Well, Binance is the only liquidity provider and issuer of BLVTs, and hence, you will be able to purchase tokens at a fair price; and if the supply of tokens is inadequate, Binance will create more tokens, inject capital, and sell them on the open market.
You will be able to transact tokens efficiently and at an acceptable price.
Binance has also ensured its traders that BLVTs will be always available for sale or buy within 10% of the NAV. No BLVTs will peasant in the Binance marketplace outside of the strict price limits.
4. Transaction and Related Fees
Last but not least is the number of fees you have to pay on Binance. BLVTs offer relatively lower fees than the other existing leveraged tokens. Be it a daily management fee of 0.01% or an annualized rate of 3.5%, these fees are lower than other tokens.
Risks associated with leveraged tokens:
You have seen the benefits of leverage tokens, especially the BLVT leverage tokens. They are easy to use and affordable in terms of fees. But these are still complicated products.
Here are the risks factors associated with leverage tokens:
1. Rebalancing impacts the price
Undergoing a rebalancing process is what these tokens are programmed to do when there is an increase or decrease in their positions. This is done to maintain the target leverage and keep away from liquidation.
Suppose, the price of Ethereum (ETH) is changed, then the ETHBULL token will buy or sell ETH to maintain its 3x position.
This regular or automated rebalancing affects you if you are holding a leveraged token for more than a day. You could see a sudden fall or rise in the exposure levels. This will be affecting your original investment too.
2. Leveraged tokens are short-term investment products
Leveraged tokens are not supposed to be looked at as long-term investment products. No matter which exchange you are trading on.
If you buy and hold ETH and there is an increment in the price over time, you’ll surely make a profit — irrespective of the overall market performance. But if you are purchasing or holding an ETHBULL token, you are exposed to a magnified impact of the price movements.
3. You’ll pay fees
Here is another reason why you should be conscious while dealing with leverage tokens. You are obligated to pay daily management fees. Though Binance charges lesser than other known exchanges such as FTX, they get added up in the long run.
Whether you are a beginner or a master trader, if you wish to trade in leverage, you must choose an exchange that is easy to use, offers market data in real-time, and charges lesser to you so that you can gain the maximum from each of your trade.
Binance is such an exchange and Binance Leverage Tokens are such tokens that are created to increase your gain.
- 1 What are Binance leveraged tokens?