What is a leveraged token?
Everyone is familiar with leveraged trading, which amplifies risks while amplifying returns, and faces the risk of liquidation in the case of insufficient collateral. The difference with leveraged tokens is that users can have leveraged positions without assuming any collateral or risk ratio and remove the risk of liquidation of the position.
Generally, the naming rules for leveraged tokens are: underlying asset + leverage + position direction, such as: BTC3L represents 3 times long Bitcoin, and BTC3S represents 3 times long Bitcoin.
How does leveraged tokens work?
Leveraged tokens provide a simplified way of leveraged trading for crypto currency. leveraged tokens corresponds to a 3 times falls/rise in the spot price of the underlying asset. Usually we will use perpetual futures to track 3 times the underlying asset in order to be able to To enrich the trading varieties of leveraged tokens, we will choose the market with the best liquidity and the best rate for risk hedging from the existing perpetual futures trading pairs of DragonEx and other platform perpetual futures trading pairs.
BTC3L holders can get 3 times leveraged income when BTC rises;
BTC3S holders can get 3 times leveraged income when BTC falls;
Position adjustment mechanism
In order to ensure that the risk exposure of leveraged tokens is linked to the target leverage ratio, if the underlying asset rises, it will increase its position, and if the underlying asset falls, it will reduce its position.
Position adjustment type: daily adjustment and temporary adjustment
Daily position adjustment: daily position adjustment of the underlying asset at a daily anchor leverage;
Temporary position adjustment: Because the Futures is used for risk hedging, when the market price of the underlying asset fluctuates drastically, for example, 15% or more, it is easy to cause the 3 times perpetual contract to liquidate. In order to meet the requirements of risk control, At this indicator line, temporary position adjustments will be made to ensure that the risk of liquidation is not triggered while keeping up with the target leverage ratio.
Transaction and related expenses
Leveraged tokens are the same as spot trading transactions, and there are transaction fees;
Because leveraged tokens have a position adjustment mechanism, position adjustments will cause Futures transaction costs and slippage as well as capital costs. Here, DragonEx leveraged tokens have done a fee integration, collectively referred to as: management fees (currently at 0.1%/day) , Try to simplify and reduce the user's position cost, the daily management fee is not directly charged to the user, only directly reflected in the net value of the leveraged token;
Why use DT as the pricing token?
As the most important ecological token of the platform, DT's asset attributes are one of its important forms. We are based on the multi-dimensional promotion of DT's equity.
Advantages and disadvantages of leveraged tokens
Advantages: no risk of liquidation, magnified returns
Disadvantages: high volatility risk. Although there is no risk of liquidation, leveraged tokens are not necessarily suitable for long-term holding due to the adjustment mechanism
It is strongly recommended that users choose to trade after having a deep understanding of leveraged tokens.