(What are Leveraged Tokens?)
The Bybit Leveraged Token is a derivatives product with no margin or liquidation risks. It provides you with leveraged exposure to the underlying asset, which may amplify profitability but also losses.
Net asset value (NAV) refers to the value of a Leveraged Token. The NAV of a Leveraged Token moves in line with the price fluctuations in the Perpetual Contracts market.
Each Leveraged Token represents a basket of Perpetual Contract positions. This means that when you trade a Leveraged Token, you’re investing in a basket of contracts for the underlying asset. A
Leveraged Tokens Name Explained
For example: BTC3L and BTC3S.
- BTC3L refers to a Leveraged Token holding long positions of BTCUSDT Perpetual Contracts with 3x leverage. For every 1% increase in the BTCUSDT price, the NAV of BTC3L will rise by 3%.
- BTC3S indicates a Leveraged Token holding short positions of BTCUSDT Perpetual Contracts with 3x leverage. For every 1% decrease in the BTCUSDT price, the NAV of BTC3S will rise by 3%.
Due to the rebalancing mechanism, the Leveraged Token is more suitable for short-term investment in a one-sided market.
You can trade a Leveraged Token in the following two ways:
- Buy and Sell
- Purchase and Redemption
Leveraged Token trading will be channeled directly through your Bybit Spot Account.
Buy and Sell
Leveraged tokens can be traded — buy or sell — on the Spot market. Using BTC3L as an example, traders can go to the BTC3L/USDT Spot market and buy or sell BTC3L.
— The price of the Leveraged Token in the Spot market reflects the result of buying and selling behavior in the Spot market. This causes the slight difference between the price of the Leveraged Token and its NAV.
— 0.1% of the Spot trading fee will be charged.
Purchase and Redemption
Leveraged Tokens can be traded — purchase or redeem — in accordance with the Perpetual Contracts positions of the underlying asset in the basket.
— Purchase and redemption are based on the NAV of Leveraged Tokens.
— 0.1% of the purchase or redemption fee will be charged.
— Currently, only API users will be able to purchase and redeem Leveraged Tokens. Other users can buy and sell the Leveraged Tokens through the Spot market.
Advantages of Leveraged Tokens
- No liquidation risks.
Although leverage is the primary feature of Leveraged Token, it falls under the Spot category. Therefore, regardless of how the price changes for the corresponding Spot trading pair, there’s no risk of liquidation.
- Compounding interest with no margin or loan, and earning with ease.
A dynamic rebalancing mechanism is designed for Leveraged Tokens, which helps control risks — and magnifies profits!
For instance, if users enter with 3x long BTC in the leveraged market, and the price of BTC falls by 33%, they’ll face liquidation and lose all their funds. However, this issue can be avoided with the rebalancing mechanism. Moreover, the BTC3L price will increase when BTC’s price rises, and losses may turn into profits.
With a rebalancing mechanism, the system automatically returns the profits back to the original investment amount and maintains targeted leverage to ensure profit is compounded.
- Easy navigation.
Buying Leveraged Tokens is exactly the same as trading in the Spot market, as you only need to buy or sell Leveraged Tokens in the secondary market, based on the price. Alternatively, users may execute purchases or redemption in the primary market. However, this method isn’t recommended for novice traders.
Which type of investors are best suited for Leveraged Token products?
As a widely used product in the traditional financial market, Leveraged Tokens are suitable for most investors. However, they’re designed for investors who believe that the market will move in a one-sided, or those who want to avoid the risk of liquidation. Due to management fees and other features of Leveraged Token products, investors may suffer losses when facing market volatility.
In addition, other extreme fluctuations, such as continuous skyrocketing or plummeting, can create a risk leading to the net value of BTC3L and BTC3S turning to zero.