Introduction

Leveraged tokens support investors to make leveraged investments based on digital currency prices, without Facing the risk of forced liquidation. This way you get the multiplied returns inherent in leveraged products without having to manage a leveraged position. This means there is no need to manage collateral or maintain margin requirements, and there is virtually no risk of forced liquidation.

The initial design of leveraged tokens was introduced by the derivatives trading platform FTX. The token has been the subject of controversy, particularly as its long-term benefits have not lived up to expectations. However, Binance Leveraged Token (BLVT) is designed differently.

If you want to understand the operating mechanism of FTX leveraged tokens, please read the "Beginner's Guide to FTX Leveraged Tokens" .

What is Binance Leverage Token(BLVT)?

Binance Leveraged Token (BLVT) can be traded on the Binance spot market. Each type of BLVT represents a series of open positions in the perpetual contract market. Therefore, the essence of BLVT is a tokenized version of leveraged contract positions.

The first type of BLVT listed on Binance is BTCUP and BTCDOWN . BTCUP represents the leverage gains obtained when the Bitcoin price rises, and BTCDOWN represents the leverage gains obtained when the Bitcoin price falls Leverage returns. The leverage gains obtained range from 1.5x to 3x. We will introduce its principles and how to generate corresponding leverage multiples in the next chapter.

Currently, Binance leveraged tokens are only listed on the Binance trading platform and can be traded directly but cannot be withdrawn to personal wallets. Please note that Binance Leveraged Tokens are not issued on-chain.

How Binance Leveraged Tokens Work

Unlike other leveraged tokens, BLVT does not maintain a constant leverage ratio. Instead, their goal is to maintain thevariable leverwithin a certain range. In the case of BTCUP and BTCDOWN, the leverage range is 1.5x to 3x, which is the perpetual leverage target value of the token. The basic idea is to maximize returns when prices rise and minimize the risk of forced liquidation when prices fall.

The target leverage is not constant and will not be made public. Why do we need to set it up like this? This is primarily to prevent front-running. If these coins would rebalance at predetermined intervals, then other traders would have a way to take advantage of this known event. Since the target leverage will not remain unchanged, the token will not be forced to rebalance (unless market conditions deem it necessary). After hiding the target leverage, traders cannot participate in rebalancing events, effectively alleviating strategic pressure.

Leveraged tokens can be traded on the Binance spot market. In addition, it can be redeemed based on its inherent value. At this point, you will need to pay a redemption fee. In most cases, it is cheaper to sell than to redeem in the spot market. Unless special circumstances similar to a black swan event occur, the price of redemption is much higher than selling in the spot market. Therefore, we always recommend selling BLVT positions through the spot market.

On the Leveraged Tokens page, you will see a term called "Net Asset Value (NAV)". It represents the value of the leveraged token in USDT. After redeeming the tokens, the USDT you receive will be determined by NAV.

Benefits of Binance Leveraged Tokens

The main reason why people are timid about leveraged tokens is volatility drag. Simply put, volatility drag is the adverse effect that volatility has on an investment over time. The greater the volatility and the longer the time span, the stronger the impact of volatility drag on the performance of leveraged tokens.

With an uptrend and strong momentum, the performance of leveraged tokens will develop as expected. However, this is not the case in consolidating markets. To solve this problem, Binance created variable leverage. BLVT will only rebalance in cases of extreme volatility and will not force periodic rebalancing. Although it cannot completely solve the problem, it can significantly reduce the long-term impact of volatility drag on BLVT performance.

Binance Leveraged Token (BLVT) Generation Fees

BLVT transactions will incur the following types of fees.

First, you need to pay a transaction fee. BLVT will be traded on the spot market and will therefore incur corresponding transaction fees like digital currencies such as Bitcoin (BTC), Ethereum (ETH) and Binance Coin (BNB). You can view the current fee tiers here.

In addition, there are admin fees. Remember, these tokens represent open positions in the contract market. Purchasing leveraged tokens means purchasing tokenized versions of these positions. Therefore, in order to hold a position, you pay a daily management fee of 0.01%. In this year, your annualized return is 3.5%.

In addition, there are two ways to liquidate BLVT positions. One is to sell it in the spot market, which is simple and convenient. The other is to redeem based on its inherent value. After choosing to redeem BLVT, the system will pay USDT based on the token value. At this time, a redemption fee is required, which is 0.1% of the token value.

It is worth noting that in normal market conditions, selling through the spot market is more cost-effective than redeeming. The redemption mechanism is to provide you with another way to close your position in extreme market conditions.

The last item is the funding fee. We all know that BLVT represents an open position in a contract transaction and therefore requires funding fees to be paid for it. This fee is only paid by futures market traders and does not need to be borne by leveraged token holders. It is still important to note that funding fees paid to the contract account are reflected in the value of BLVT.

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How to buy and redeem Binance Leveraged Tokens

Compatible with other digital currencies and Tokens identical, BLVT is now listed on the Binance spot market. The operating position has changed, and transactions can be conducted through the advanced trading interface under the "ETF" tab. This is done to avoid confusion and help distinguish leveraged tokens from other traded assets.

You can also trade on the leveraged tokens interface at the top of the Binance homepage. Next, we’ll cover how to buy Binance Leveraged Token (BLVT).

1. Log in to your Binance account.

2. Hover over the "Derivatives" option at the top and select Leveraged Tokens.

3. Select the BLVT trading pair you want to trade.

4. This will guide you to the BLVT order page.

5. Click "Buy" and then enter the advanced transaction interface.

6. Please read the Risk Disclaimer carefully before starting to trade. If you understand the risks and are over 18, please check the box and click "Confirm".

7. BLVT transactions can be carried out at this time, and the operation method is similar to other tokens or products.

For example, this is BTCUP's page. If you hold BLVT and need to redeem it, click the "Redeem" button on this page. Redemption history can also be viewed here.

Summary

Binance Leveraged Token (BLVT) provides leveraged exposure to the price of digital currencies without the need to manage leveraged positions.

Since the target leverage can be changed, BLVT's long-term performance will be more stable. While holding BLVT is not exactly the same as holding a leveraged position, BLVT can expand your trading toolkit and optimize your trading strategy.