Q1: What Are ETF Leveraged Tokens?
A: ETF leveraged tokens function similarly to traditional ETFs in conventional finance. They track the price movements of a given underlying asset, typically with a leverage factor of three or five times the market fluctuation of the underlying asset. Unlike traditional margin trading, users do not need to deposit any collateral when trading ETF leveraged tokens. Instead, they can achieve leveraged exposure simply by buying or selling the tokens.
Each ETF leveraged token is backed by futures contract positions, which are managed by the platform’s fund manager. This allows users to maintain a fixed leverage investment portfolio without needing to understand the underlying mechanisms.
Q2: What Is the Underlying Asset?
A: The underlying asset of an ETF leveraged token can be identified from its name. For example, BTC3L and BTC3S have BTC as their underlying asset.
Q3: Do ETF Leveraged Tokens Have a Fixed Supply?
A: ETF leveraged tokens, like perpetual contracts, are financial derivatives rather than cryptocurrencies. Therefore, they do not have a fixed total supply or a burning mechanism.
Q4: How Do ETF Leveraged Tokens Amplify Returns?
A: ETF leveraged tokens magnify price fluctuations to enhance potential gains (or losses). For instance, after rebalancing, if BTC experiences a 5% price change, the net value of BTC3L (3x long BTC) would change by approximately +15%, while the net value of BTC3S (3x short BTC) would change by approximately -15%, assuming no additional intraday rebalancing is triggered.
Q5: How Do ETF Leveraged Tokens Differ from Margin Trading?
A: Margin trading involves borrowing assets exceeding the initial margin to amplify returns and losses, with leverage determined by the borrowed amount relative to the collateral.
ETF leveraged tokens , on the other hand, amplify price movements rather than positions. They do not require collateral or borrowing, and they eliminate the risk of liquidation.
Q6: How Do ETF Leveraged Tokens Differ from Perpetual Contracts?
A: No margin or liquidation risk: ETF leveraged tokens do not require margin deposits and are not subject to liquidation.
Fixed leverage ratio: In perpetual contracts, the effective leverage varies with position value. However, ETF leveraged tokens undergo scheduled rebalancing, keeping the leverage ratio stable at 3x or 5x.
Q7: Why Can’t ETF Leveraged Tokens Be Liquidated?
A: The platform’s fund manager dynamically adjusts futures positions to maintain a fixed leverage ratio over a certain period. When profitable, positions are automatically increased after rebalancing; when losses occur, positions are reduced accordingly. This prevents forced liquidations.
Note: Rebalancing adjusts the contract positions underlying each token but does not change the number of tokens held by users.
Q8: When Does Rebalancing Occur?
A: 3x ETF Leveraged Tokens
- Irregular Rebalancing: If the real-time leverage ratio exceeds 4x, the system triggers an intraday rebalancing to restore leverage to 3x.
- Regular Rebalancing: Evaluated daily at 00:00 UTC+8. If the real-time leverage is below 2x, exceeds 4x, or if the underlying asset experiences significant price fluctuations (e.g., over 1% based on the contract index price), a rebalancing mechanism is triggered to adjust leverage back to 3x.
5x ETF Leveraged Tokens
- Irregular Rebalancing: Triggered when the real-time leverage ratio exceeds 7x, adjusting leverage back to 5x.
- Regular Rebalancing: Evaluated daily at 00:00 UTC+8. If the real-time leverage falls below 3.5x, exceeds 7x, or if the underlying asset experiences a large price movement (e.g., over 1% based on the contract index price), rebalancing is executed to restore leverage to 5x.
Q9: Why Is There a Management Fee?
A: ETF leveraged tokens require active risk hedging in the perpetual futures market, which incurs costs. Gate charges a daily management fee of 0.1% , covering all expenses, including contract market fees, funding rates, and slippage.
Despite this, Gate’s management fee does not fully cover the operating costs of ETF leveraged tokens, and the platform absorbs the deficit. In the future, Gate plans to introduce portfolio ETFs and low-leverage inverse ETFs, utilizing advanced technology to reduce costs and provide users with more cost-effective trading solutions.
Q10: What Is Net Asset Value (NAV)?
A: The net asset value (NAV) represents the fair market value per token. It is calculated as follows:
Previous Rebalancing NAV × (1 + Underlying Asset Change × Target Leverage multiple)
- The “Previous Rebalancing NAV” refers to the NAV after the last rebalancing.
- The actual market price of ETF leveraged tokens in the secondary market may deviate slightly from NAV but remains closely anchored. For example, if BTC3L’s NAV is $1, its market price might be $1.01 or $0.99.
Gate displays both the NAV and the latest market price of each ETF leveraged token to help users avoid trading at a significant premium or discount, which could lead to losses.
Q11: How Is the 3x Movement Reflected in Gate’s ETF Leveraged Tokens?
A: ETF leveraged tokens exhibit price changes at three times the fluctuation of the underlying asset, which is reflected in their NAV. For instance:
- If BTC rises 1%, BTC3L’s NAV increases by 3%, while BTC3S’s NAV decreases by 3%.
- If BTC falls 1%, BTC3L’s NAV decreases by 3%, while BTC3S’s NAV increases by 3%.
Q12: How Is the Price Change of an ETF Leveraged Token Calculated?
A: The price change is based on the NAV rather than the market price. The formula follows the same rebalancing-adjusted calculation method as described above.
Q13: Does Rebalancing Change the Number of Tokens Held?
A: No, rebalancing adjusts the contract positions underlying the ETF leveraged tokens, but it does not alter the number of tokens held by users. Its primary function is to maintain the 3x or 5x leverage ratio.
Q14: Temporary Rebalancing Mechanism
A: During extreme market fluctuations, a temporary rebalancing mechanism prevents contract hedging positions from being liquidated.
- Before March 16, 2020, at 10:00 UTC, the threshold for temporary rebalancing was a 15% price movement from the last rebalancing point.
- After March 16, 2020, at 10:00 UTC, due to increased market volatility, the threshold was adjusted to 20%.
Disclaimer: The final interpretation of this product belongs to Gate.
