Binance Leveraged Tokens Rebalance

Introduction

Binance, the world’s largest cryptocurrency exchange by trading volume, has launched a new type of token that allows users to get exposure to the price movements of major cryptocurrencies without having to actually hold the underlying asset. These so-called “leveraged tokens” track the price of their underlying asset and rebalance automatically when the price changes, in order to maintain a constant leverage ratio.

The launch of these tokens follows a similar move by BitMEX, another major cryptocurrency derivatives exchange, which launched its own leveraged tokens earlier this year. Binance’s leveraged tokens are currently available for Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) and Ripple’s XRP.

What are Leveraged Tokens?

Leveraged tokens are a type of cryptocurrency token that gives users exposure to the price movements of their underlying asset, without having to actually hold the asset itself. These tokens are designed to track the price of their underlying asset and automatically rebalance when the price changes, in order to maintain a constant leverage ratio.

For example, let’s say you purchase a 3x leveraged BTC token when Bitcoin is trading at $10,000. This means that for every 1% increase in the price of Bitcoin, your 3x leveraged BTC token will increase in value by 3%.

Conversely, for every 1% decrease in the price of Bitcoin, your 3x leveraged BTC token will decrease in value by 3%.

If Bitcoin then rallies to $11,000, your 3x leveraged BTC token will increase in value to $12,000 (3% of $11,000 is $12,300). However, if Bitcoin then falls back to $10,500, your 3x leveraged BTC token will fall in value to $11,500 (3% of $10,500 is $11,550).

As you can see from this example, leveraged tokens allow you to get exposure to the price movements of their underlying asset without having to actually hold the asset itself. This can be useful for speculative traders who want to take advantage of market movements without having to worry about managing their own positions.

It’s important to note that leveraged tokens do not eliminate risk; they simply allow you to magnify your gains (or losses) from market movements. For this reason, it’s important to only trade with money that you can afford to lose.

What Does Binance Leveraged Tokens Rebalance?

Assuming that you have held a Binance Leverage Token since its inception date on December 1st 2017 and that BTC was at an all time high on this date at US$19500 per coin – your investment would have been worth US$595 on December 8th 2017 when BTC hit its first major correction at US$11600 per coin just one week later. Your original investment would have been worth 33% less than what it was 7 days prior. At this point – if you were not monitoring your investment or if you were new to investing – you might have gotten scared and sold thinking that BTC was going down for good and that you had lost 33% of your money in just one week. If you had sold – you would have realized a 33% loss on your original investment. However – if you had held onto your Binance Leverage Token – by December 22nd 2017 – just two weeks after the market crash – your original investment would have been worth US$810 – 35% more than what it was worth on December 8th 2017. In other words – had you sold during the market crash – you would have realized a 33% loss but if you had held onto your Binance Leverage Token – you would have made a 35% profit.

So what exactly happens during times of high volatility like we saw in December 2017? Let’s take a look at how Binance Leverage Tokens rebalance during periods of high volatility. When there is high volatility in the market – like we saw in December 2017 – Binance Leverage Tokens will automatically buy or sell coins in order to maintain their original leverage ratio. For example – let’s say that you purchased a 3x ETH token when ETH was trading at US$500 per coin on December 1st 2017. When ETH crashed down to US$300 per coin on December 8th 2017 – your ETH token would have still been worth US$595 because it would have automatically sold some ETH and used this ETH to buy more USDT in order to maintain its original leverage ratio. Similarly – when ETH rallied back up to US$700 per coin on December 22nd 2017 – your ETH token would have still been worth US$810 because it would have automatically bought more ETH and used this ETH to sell some USDT in order to maintain its original leverage ratio. So as we can see from these examples – Binance Leverage Tokens automatically buy or sell their underlying assets in order modify their supply so as to maintain their original leverage ratio during periods of high volatility which results in much smoother rides for investors holding these types of tokens during these types of volatile markets conditions.”.