1. No Collateral and High Utility of Fund
Compared with regular crypto margin and futures trading, users have a higher utility of fund while trading leveraged tokens. This is because leveraged token trading requires no collateral as spot trading. No positions being used by collateral helps increase the utility of fund.
2. Easy operations and Higher Returns
Leveraged tokens are traded using the same mechanism as spot trading. Users can easily trade leveraged tokens by simply going short or long on their target tokens without other operations required.
Take BTC3L and BTC3S as an example—the user need only to check the net value of BTC3L and BTC3S then enter their desired trading amount before engaging in leveraged token trading with no other operations required.
Leveraged token trading can be conveniently understood as spot trading in terms of trading mechanism. Compared to spot trading, leveraged tokens come with in-built leverage, and users do not need to manage margin or collateral while using leveraged positions to multiply their returns. Therefore, leveraged tokens have more advantages over spot or margin token trading.
3. Compound Effect
The rebalancing mechanism ensures a compound effect on leveraged token trading when the market keeps moving up or down in one direction. With the mechanism, earnings from the holdings of leveraged positions will be automatically redelegated to the positions after a daily rebalancing event. As such, users can leverage the compound effect to earn higher returns in a one-sided market. This means that leveraged tokens are a perfect fit for a trending market.
4. No liquidation and manageable risks.
In theory, leveraged token trading has no liquidation risks due to its feature of needing no collateral for trading. In addition, the rebalancing mechanism makes risks in trading leveraged tokens manageable. Take BTC3L as an example— if there is a 33% change in the futures positions for the underlying asset, then BTC3L could approach 0 in net value. In fact, before BTC futures positions change beyond the set value (such as 10%), the rebalancing mechanism would be triggered to conduct an automated rebalancing event to reduce the risks of the contracts and adjust the real leverage level back to target leverage of 3X.
Risk Disclosure: As an emerging financial derivative, theoretically, there is no liquidation risks for a leveraged token. However, with incorrect trend predictions, there will be a risk that the net asset value of a leveraged token approaches 0 amid extreme market conditions. Please fully understand the rules before engaging in leveraged token trading and be cautious to reduce potential risks.