Frequently Asked Questions

What are leveraged tokens?

Leveraged tokens are tokenized leveraged positions that provide amplified exposure to cryptocurrency price movements. They automatically maintain a fixed leverage ratio (typically 2x or 3x) through daily rebalancing, eliminating the need for margin management and liquidation concerns.

How do leveraged tokens differ from futures?

Unlike futures contracts, leveraged tokens have no expiration date, no liquidation risk, and no need to manage collateral. They rebalance automatically to maintain target leverage, making them simpler to trade but subject to volatility decay in choppy markets.

Can I lose more than my initial investment?

No, you cannot lose more than your initial investment. The worst case scenario is that your token value goes to zero. There is no liquidation or margin call, making them safer than traditional leveraged trading in this respect.

When is the best time to trade leveraged tokens?

Leveraged tokens work best in strong trending markets. They are ideal for short-term directional trades, typically intraday to a few days. Avoid holding them during choppy, sideways markets where daily rebalancing can cause significant value decay.

What is the optimal holding period?

Leveraged tokens are designed for short-term trading, ideally holding for hours to a few days at most. The longer you hold, the more you expose yourself to volatility decay and compounding effects that can erode value, even if the market moves in your favor overall.

Should I use stop-loss orders?

Yes, stop-loss orders are highly recommended when trading leveraged tokens. They help protect your capital from sudden market reversals and prevent emotional decision-making during volatile periods. Set your stop-loss based on your risk tolerance and trading strategy.

How much should I allocate to leveraged tokens?

Due to their volatile nature and decay risk, limit leveraged token exposure to 5-10% of your total portfolio. Only trade with capital you can afford to lose, and never use them as long-term investments or core portfolio holdings.

What is rebalancing and when does it happen?

Rebalancing is the process of adjusting the underlying positions to maintain the target leverage ratio. This typically occurs daily at UTC midnight. During rebalancing, the token buys or sells futures contracts to reset leverage to the target level (e.g., 3x).

What is volatility decay?

Volatility decay occurs when markets move up and down without a clear trend. Daily rebalancing causes the token to buy high and sell low repeatedly, eroding value over time. The more volatile and sideways the market, the greater the decay effect.

How is the token price calculated?

Token prices are based on the performance of underlying perpetual futures contracts. The token's net asset value (NAV) is calculated using the value of these positions minus fees and funding costs, then divided by the total token supply.

What fees are involved?

Fees typically include a daily management fee (usually 0.01-0.03%), trading fees from rebalancing, and funding rates from perpetual futures positions. These costs are automatically deducted from the token's NAV and reflected in the price.

What are the main risks I should be aware of?

The primary risks include:

• Volatility decay in sideways markets
• Compounding effects over multiple days
• Market risk from incorrect directional bets
• Liquidity risk during extreme market conditions
• Smart contract and counterparty risk

How can I minimize risk when trading?

Follow these risk management practices:

• Trade only in trending markets with clear direction
• Hold positions for short periods (hours to days)
• Use stop-loss orders to limit downside
• Size positions appropriately (5-10% of portfolio max)
• Monitor positions actively and have exit plans
• Avoid holding through uncertain events or news

Are leveraged tokens suitable for beginners?

Leveraged tokens are complex instruments best suited for experienced traders who understand leverage, volatility, and market dynamics. Beginners should start with spot trading and traditional investments before exploring leveraged products. If you do trade them as a beginner, start with very small positions to learn how they behave.