Introduction to ETF Leveraged Tokens on Gate
Gate has introduced ETF leveraged tokens, which differ from traditional tokens in that they possess a leverage attribute. These tokens are available in the platform’s spot trading market and correspond to existing spot trading pairs.
ETF leveraged tokens are managed and hedged in the perpetual contract market. A daily management fee of 0.1% is currently charged (subject to adjustments based on actual costs, with any changes announced in advance). This fee covers contract trading costs, including funding rates and transaction fees. However, ETF leveraged tokens do not directly charge users additional contract funding fees. Through optimized fund management, the goal is to reduce users’ actual leverage costs and risks.
When trading ETF leveraged tokens, users do not need to pay a margin, but a 0.1% daily management fee applies. This fee is deducted from the managed funds and is not directly reflected in user transactions. While ETF leveraged tokens correspond to perpetual contracts in nature, they can be conveniently traded like spot assets. Compared to directly trading perpetual contracts, ETF leveraged tokens are designed to optimize cost efficiency and mitigate leverage risks. However, as they are high-risk products, users must have a thorough understanding before engaging in transactions.
ETF Leveraged Token Symbol
- 3L (3x Long): Represents a 3x long position (e.g., ETH3L is an Ethereum 3x long token; “L” stands for “Long”).
- 3S (3x Short): Represents a 3x short position (e.g., ETH3S is an Ethereum 3x short token; “S” stands for “Short”).
Rebalancing Mechanism
ETF leveraged tokens automatically adjust their leverage ratio daily based on profits or losses to maintain the target leverage. When the product is profitable, additional positions are opened; when it incurs losses, positions are reduced. Users can achieve leveraged trading simply by buying and selling ETF leveraged tokens, without needing to post margin.
Gate’s ETF rebalancing mechanism includes Scheduled Rebalancing and Unscheduled Rebalancing .
3x ETF Leveraged Tokens
Scheduled Rebalancing
- 3X Long Tokens: At 16:00 (UTC) daily: no rebalancing if leverage fluctuates within 2.25X–4.125X; if it falls outside this range or if the underlying asset’s daily price change exceeds 1%, leverage is adjusted to 3X.
- 3X Short Tokens: At 16:00 (UTC) daily: no rebalancing if leverage fluctuates within 1.5X–5.25X; if it falls outside this range or if the underlying asset’s daily price change exceeds 1%, leverage is adjusted to 3X.
Unscheduled Rebalancing
- 3X Long Tokens: No rebalancing if leverage remains within 2.25X–4.125X; otherwise, adjusted to 3X.
- 3X Short Tokens: No rebalancing if leverage remains within 1.5X–5.25X; otherwise, adjusted to 3X.
5x ETF Leveraged Tokens
Scheduled Rebalancing
- At 16:00 (UTC) daily: if the real-time leverage is < 3.5X, > 7X, or the underlying asset’s daily price change exceeds 1% (based on index price), leverage is adjusted to 5X.
Unscheduled Rebalancing
- No rebalancing if leverage remains within the range of 3.5X–7X; if it falls outside this range, leverage is adjusted back to 5X.
Key Considerations:
- 5x ETF leveraged tokens are more sensitive to price changes and experience higher rebalancing frequency, resulting in greater capital decay.
- They are only suitable for short-term hedging.
- 3x ETF leveraged tokens experience smaller price swings and lower decay, making them relatively more stable. Users should carefully choose the appropriate product based on their strategy.
Advantages of ETF Leveraged Tokens
No Liquidation Risk
- ETF leveraged tokens are spot trading pairs and do not have a liquidation mechanism.
- Even if the token price drops from $100 to $1, the number of tokens held remains unchanged.
- However, significant losses may trigger automatic position reductions (rebalancing). In extreme cases, the token price may approach zero, but this is rare.
No Margin Requirement
- Unlike traditional margin contracts, ETF leveraged tokens do not require a margin deposit to access leverage. However, they incur a daily management fee.
No Deposits or Withdrawals Supported
- ETF leveraged tokens cannot be directly deposited or withdrawn.
Automatic Compounding & Stop-Loss Mechanism
- In trending markets, profits are reinvested automatically, creating a compounding effect that enhances returns.
- In downtrends, instead of being liquidated, the token automatically reduces positions in stages, minimizing losses.
Risks & Limitations of ETF Leveraged Tokens
High Risk
- ETF leveraged tokens are a relatively new product and inherently carry high leverage risk.
Not Suitable for Long-Term Investment
- These products are intended for short-term speculation and risk hedging, not for medium- or long-term investment.
- Due to the rebalancing mechanism, long-term holding leads to significant capital erosion. The longer the holding period, the greater the losses.
Daily Management Fee
- Unlike perpetual contracts, where funding fees are exchanged between long and short positions, ETF leveraged tokens charge a fixed 0.1% daily management fee.
Risk Warning
- The cryptocurrency market is highly volatile.
- 3x and 5x ETF leveraged tokens amplify price fluctuations, leading to increased profit and loss risks.
- Due to scheduled and ad-hoc rebalancing, the cumulative price movement over time does not always correspond to the target leverage multiple.
- ETF leveraged tokens hedge positions using perpetual contracts: Profits result in additional positions/Losses result in reduced positions/ Rebalancing occurs daily to reset leverage to the target level.
- In volatile markets, the capital decay effect is significant.
- ETF leveraged tokens are not suitable for long-term holding due to rebalancing mechanics and carrying costs.
- ETF leveraged tokens involve high volatility and risk. Please proceed with caution.
Disclaimer: The final interpretation rights of this product belong to Gate.