What Are Leveraged Tokens?
Leveraged tokens are a type of cryptocurrency derivative that allows traders to gain leveraged exposure to a particular cryptocurrency without having to actively manage the margin requirements. They are designed to provide traders with a simplified way to trade leveraged positions in cryptocurrencies.
Go Back
đź•’ 1:31 PM
đź“… May 14, 2025
✍️ By Ecojames
What are Leveraged Tokens?
Leveraged tokens are a financial product that provides traders with leveraged exposure to an underlying digital asset without the need for collateral and liquidation risks.
Advantages of Leveraged Tokens
1. Built-in leverage for amplified returns
Through the internal leverage effect, users can achieve higher returns with less capital.
2. No liquidation risk
Despite the leverage feature, leveraged tokens are spot products. No matter how the price of the underlying asset moves, liquidation will never occur.
3. Efficient capital utilization
No need for margin or borrowing—leveraged trading made easy.
4. Fast and convenient trading
Buying leveraged tokens is as simple as spot market trading. Users can buy or sell in the secondary market based on price conditions or subscribe/redeem in the primary market.
Risks of a leveraged tokens
While leveraged tokens offer potential benefits, they also come with certain considerations and risks:
1. Decay
The daily rebalancing of leveraged tokens can lead to a phenomenon called "decay." Over time, the performance of leveraged tokens may deviate from the intended leverage ratio, especially during periods of high volatility therfore affecting the long term holding strategy.
2. Volatility and Losses
Leveraged tokens magnify not only gains but also losses. If the price of the underlying asset moves unfavorably, the losses incurred by leveraged tokens may be proportionally higher, especially for tokens with higher leverage ratios.
3. Complexity
Leveraged tokens involve complex mechanisms and may not be suitable for crypto newbies.