What are Leveraged Tokens?

Some cryptocurrency exchanges offer leverage options for many popular tokens, including Bitcoin, Ethereum, Solana and many other major crypto names. Among leveraged tokens, some ETFs have some interesting features and benefits. For example: the ticker BTC3L stands for 3x long leverage for BTC, and BTC3S stands for 3x short leverage for BTC.

The main advantage of leveraged tokens is that, unlike the in real investment world, there is no liquidation in an adverse market movement. Even though leveraged ETFs are built on credit margin principles, they are still a form of spot trading tools. Therefore, no matter how much the price of the coin/token of interest changes, brutal liquidation will never occur on a trader’s account.

There are also no margin or credit requirements. Investors trading leveraged tokens do not need to pay margin or borrow funds to try margin trading for more profits! In addition, the dynamic rebalancing mechanism is usually integrated and designed to control risk and increase the alpha of portfolios.

If an investor trades BTC with 3X leverage in the margin market when the price of BTC drops by 33%, he/she will face liquidation and lose all his/her funds. However, thanks to the dynamic rebalancing mechanism, this unfavorable situation will not happen as long as they are trading leveraged tokens and not real futures.