Binance Leveraged Tokens are spot-market tradable assets that give leveraged exposure to a cryptocurrency without the danger of liquidation. Because users are not obliged to pledge collateral or maintain margin, Binance leveraged tokens avoid the complexities of managing a traditional leveraged position.
Essential Things to Consider Before Investing in a BLT
Maintaining Target Leverage, Leveraged Tokens Rebalance
- Target leverage is defined for each leveraged token, such as three times the underlying asset. The token will automatically rebalance to retain that leverage. If it is profitable, the proceeds will be re-invested.
- Every day, leveraged tokens are rebalanced. During moments of excessive volatility, the exchange that offers the token may contain triggers that cause it to rebalance as soon as feasible.
Leveraged Tokens Are Popular for Their Simplicity
On the other hand, Leveraged tokens are a straightforward option that doesn’t necessitate any action. There’s no need to be concerned about collateral or margin money borrowed from a brokerage or crypto exchange. Because of rebalancing, the chance of liquidation is relatively minimal. Even if the token’s value lowers, it will sell off some of its assets, making it less likely to be wiped out.
Leveraged Tokens Are Susceptible to Volatility Decay
- Volatility decay, or the detrimental impact of volatility on investment, is one of the most significant dangers of leveraged tokens.
- A comparison is the most effective technique to grasp this notion. A modest loss on a regular crypto purchase becomes a much more significant loss on a leveraged token.
- Volatility decay eats away at investment even with tiny back-and-forth price changes.
Many Crypto Exchanges Don’t Sell Leveraged Tokens
A popular strategy is using another crypto exchange as an on-ramp to deposit money and then transferring those monies to the exchange that sells leveraged tokens. This is how it would function in practice.
- Deposit funds to a structure that enables it, such as Coinbase.
- Use those dollars to purchase a cryptocurrency that sends.USD Coin, for example, is a popular stablecoin.
- Transfer the cryptocurrency to a platform that supports leveraged tokens.
There Are Extra Fees to Leveraged Tokens
One drawback of holding leveraged tokens is volatility degradation. It frequently has additional administrative costs as well. Fees for two prevalent types of leveraged tokens are listed below.
- The daily maintenance charge for Binance Leveraged Tokens is 0.01 percent.
- The daily management fee for FTX Leveraged Tokens is 0.03 percent.
- Binance Leveraged Tokens would cost 3.65 percent, whereas FTX Leveraged Tokens would cost nearly 10 percent in management fees.
Leveraged Tokens Are Short-term Investments for Advanced Traders
Due to volatility decay and management fees, leveraged tokens aren’t a long-term investment. Because cryptocurrency is so unpredictable, there’s a good possibility users will lose money if users hold leveraged tokens.
Because of the danger, leveraged tokens are not suitable for beginners, they can quickly lose a significant percentage of the investment.
Most investors should buy, preferably most investors, to buy and hold cryptocurrencies. It’s already highly volatile without the addition of leverage, which magnifies every price fluctuation. The interested in leveraged tokens, doing homework first, and only investing money are willing to lose.
Leveraged tokens are built to multiply the underlying asset’s daily return. Every day, a token’s leverage factor will be reset. As a result, the long-term performance of a token and its underlying asset may differ. Leveraged tokens can be used to complement any core portfolio’s exposure. Holding assets in the spot market is not a substitute for holding leveraged tokens. This gives traders greater possibilities for gaining exposure and profit in short-term trends.