BTCUP and BTCDOWN announced by the Binance exchange;
They are self-leverage priced tokens like Bull and Bear tokens of the FTX exchange. It is briefly referred to as BLVT (Binance Leveraged Tokens).
BTCUP - The token that allows you to earn more in the long position by increasing the price at a higher rate as the price of Bitcoin increases.
BTCDOWN – The token that allows you to earn more in a short position with a higher price as the bitcoin price drops.
The leverage ratio of tokens is between 1.5% and 3%. It has no fixed value. Binance says that this rate is adjusted automatically according to market movements.
The most important point of leveraged tokens is the part where the price called rebalancing.
Previously, the most losses to Bull and Bear tokens occurred due to the fact that this mechanic was not known correctly.
In Binance leveraged tokens, positions are only rebalanced as needed, which can increase profits when the market is suitable and reduce losses when the market is unfavorable to prevent liquidation.
I can describe rebalancing in detail as follows. the leverage ratio varies between 1.5% and 3%. The actual target leverage level is constantly changing and hidden from external observation. There are two ratios, which we can call Real leverage, which indicates the current leverage ratio, and target leverage, which indicates the next balanced leverage ratio.
Binance explained this process on its site with an example:
1- Let's say, with a fund size of $ 100 million in Binance Leverage Tokens and a total of $ 180 million in futures position in the basket. The real lift in this case is 1.8x.
2 - When the price of BTCUSDT perpetual futures increases by 5%, the value of futures positions will increase by $ 9 million to $ 189 million. Leveraged tokens will earn $ 9 million and fund size will increase to $ 109 million. In this case, the actual leverage ratio will decrease to 1.73%. At this point, since the new rate is between 1.5% and 3%, rebalancing will not be done.
3- When BTCUSDT continuous futures price increases by 40%, futures positions will increase by $ 75.6 million to $ 264.6 million. As a result, leveraged tokens will earn $ 75.6 million and fund size will increase to $ 184.6 million. The actual leverage ratio drops to 1.43x.
4 - As the real leverage ratio is below 1.5 times, this time the algorithm will be rebalanced. The algorithm will purchase additional futures positions to increase the actual leverage level. This part of the job is complicated and possible confusion is possible because the algorithm determines exactly how long it will buy. For example, if he wants to rebalance from 1.43x to 1.7x, the algorithm will buy an additional futures position of $ 49.22 million and increase the total futures positions to $ 313.82 million with a fund size of 1.7x.
We need to understand from here that there will be rebalancing, such as Bull tokens, not once a day, but especially during extreme market movements.
Important Notice: Leveraged transactions carry intense risks. Many people who used Bull and Bear tokens before have done significant loss because they do not understand exactly what it is. I strongly recommend Binance Futures rather than Leveraged tokens.
For more information. please visit Binance website.
https://www.binance.com/en/register?ref=36316012
