- Leveraged tokens are gaining popularity in the crypto space.
- Two popular types of leveraged tokens are Binance leveraged tokens and FTX leveraged tokens.
- While leveraged tokens have certain advantages, there are risks associated with the asset too.
The world of cryptocurrencies is rightly called the wild west of the finance world primarily due to the complex concepts and lack of education about the same. To an outsider, more often than not, the space is attributed as a web of complicated currencies and ecosystems.
This article will look at one such complex concept in the crypto-verse of leveraged tokens.
What are Leveraged Tokens?
Leveraged tokens, much like the name suggests, are tokens that give traders and investors a leveraged position in trading. This would mean that earnings and losses multiplied while using such tokens.
Unlike traditional trading methods, leverage coins are usually ERC-20 tokens that offer leverage to holders. These tokens offer convenience to traders as they don’t require them to take care of the margins or understand liquidation risk.
As opposed to margin trading, leveraged tokens allow traders to gain exposure to leveraged positions without putting up any collateral or liquidation risk. In contrast, traders don’t necessarily have to worry about liquidation risk, other risks associated with leveraged tokens, such as the effects of price movements in the perpetual contracts market, premiums, and funding rates.
Top Leveraged Tokens in The Market
Leveraged tokens represent a basket of perpetual contract positions wherein the token’s price is pegged to price changes in the perpetual contract market. Thereby, changes in the perpetual contract market affect the leverage positions of traders.
Some of the top leveraged tokens like TRXUP, BTCUP, and BTCDOWN are pegged to Tron and Bitcoin, respectively. TRXUP is a leveraged token with a current price of $0.06156848 and was up 4.02% over the last 24 hours, according to data from Coin Market Cap. These tokens can be traded on Binance, FTX, and other top exchanges.
Notably, Binance offers leveraged tokens as a derivative product that can be traded on the spot market. Leveraged tokens provide fixed and variable leverage and rebalance themselves every day at 00:02:00 UTC or when the spot market price changes by 10%.
That said, while leveraged tokens offer higher profits, they are at risk of volatility decay or the negative impact of volatility on the investment. Another issue is that they usually have additional management fees.
Top leveraged tokens like Binance Leveraged Tokens and FTX Leveraged Tokens have a daily management fee of 0.01% and 0.03%, respectively.