How to make the most out of leveraged tokens?
The Bitcoin.com Exchange just recently listed four new 3x leveraged tokens by AMUN. The listing was followed by a fee-free trading competition and a trading competition to support the trading volumes and increase the awareness of these tokens.
Do you know what a leveraged token is for? Have you ever traded it? We have put together a Q&A to help you get started with these tokens.
What are leveraged tokens?
Leveraged tokens are innovative ERC20 assets that can give you leveraged exposure to cryptocurrency markets, without having to deal with margin trade, liquidation, collateral, funding rates.
With these tokens, you have the chance to take advantage of market volatility without having to risk your market margin!
It should be said that leverage tokens can lose significant value in a sideways market, and are not intended for long term holding. Before exposing yourself to any financial risks, make sure you understand the mechanisms of these tokens.
Since leveraged tokens are on a blockchain, they allow similar functionality as other tokens. Meaning that you can buy, store, and transfer them like any other token.
How do leveraged tokens work?
The BTC3L and ETH3L tokens maintain notional exposure to 3x of the daily returns of Bitcoin/Ether and the BTC3S and ETH3S tokens maintain notional exposure to -3x of the daily returns of Bitcoin and Ether.
For example, for every 1% BTC goes up in a day, BTC3L (Bitcoin 3x Daily Long) goes up 3%; for every 1% BTC goes down, BTC3L goes down 3%.
The inverse of the BTC3L token is the BTC3S token, which represents a 3x short exposure to the price of Bitcoin and the same for ETH3L and ETH3S which represent the price of Ether.
As such, if the price of Bitcoin goes down 1%, the BTC3S token goes up 3%, while if Bitcoin goes up 1%, BTC3S goes down 3%.
What is the recommended holding time for leveraged tokens?
Amun’s leveraged tokens are best held for a maximum of one day as they only provide 3x or -3x notional exposure to the daily performance of Bitcoin or Ethereum. Over multiple days the tokens are subject to compounding and will not exactly track 3x or -3x of Bitcoin or Ethereum’s multi-day returns.
How can I purchase leveraged tokens?
You can purchase these tokens on the Bitcoin.com Exchange.
How to make money trading Amun’s leveraged tokens?
The tokens are best used when a trader believes that either Bitcoin or Ethereum will have a single-day price movement — either positive or negative. This could be due to an upcoming protocol upgrade or recently-leaked news item and the greater the impact on the price on the assets, the more than holders of the relevant leveraged tokens are placed to benefit. Traders should pay attention to news cycles and new updates for Bitcoin and Ethereum in order to make money trading Amun’s leveraged tokens — such as the recently-passed $1B+ options expiry day on Deribit.
What to avoid when trading leveraged tokens?
The crucial thing to watch for when trading leveraged tokens is the effect of holding leveraged tokens for multiple days. As we’ve written in other educational posts, leveraged tokens do not track their equivalent margin position performance over multiple days due to the tokens’ daily rebalance.
Leveraged tokens are designed to be best used on single days in order to avoid the complications of the daily rebalancing. A trader would do well by considering the impact of the rebalancing within their trading strategies which occurs at 5 PM CET daily. You can access data on the rebalancing process as tokens.amun.com which may be helpful for informational purposes.
What are the benefits of leveraged tokens?
The tokens intend to provide a more convenient and cheaper way of obtaining various types of exposures to crypto. The aim of the leveraged tokens is to remove the hassle associated with taking margin positions on crypto exchanges.
What are the risks associated with leveraged tokens?
These tokens may not be suited for the novice user. It should be said that leverage tokens can lose significant value in a sideways market, and are not intended for long term holding.
Before exposing yourself to any financial risks, make sure you understand the mechanisms of these tokens.
It’s important that you read our articles about leveraged tokens and Amun’s educational section to fully understand how leverage works, especially in terms of rebalancing and compounding.
At what time exactly do they reset back to BTC/ETH’s price?
Leveraged tokens do not “reset” they rebalance at 5 PM CET. It means they adjust their exposure to ensure that they always track 3x or -3x of BTC or ETH’s DAILY returns.
For example, if ETH goes up 5% then ETH3L will go up 15% on day 1, but then it will need to be rebalanced as the increase in price would mean the token is overexposed to ETH’s movement.
What are the fees associated with leveraged tokens?
There are two categories of fees associated with these tokens
- For users minting or burning tokens: 0.1% fee associated with every transaction or a 5 USDC minimum
- For users holding tokens: 0.03% daily fee
So could I sell my tokens and buy new ones before 5 pm CET when it rebalances? Or would the rebalancing still affect it somehow?
A day is defined by 5 pm CET — 5 pm CET the next day. There are trading strategies you could do where you sell at the end of the day (5 PM) and the buy after the rebalance. The best way to do this is probably through Bitcoin.com Exchange or tokens.amun.com
We hope this small Q&A was useful for you to get a taste of leveraged tokens and to be able to start trading. If you have any questions about the mechanism of these digital assets, join our Telegram group, and get the best answers and pieces of advice from our community.