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The Bybit Leveraged Token is a derivatives product with no margin or liquidation risks. It provides you with leveraged exposure to the underlying asset, which may amplify profitability and potential losses.
At Bybit, each Leveraged Token represents a basket of Perpetual Contract positions. This means that when you trade a Leveraged Token, you’re investing in a basket of contracts for the underlying asset. As shown below, a basket of BTC3L consists of 17.772 BTC worth of long BTCUSDT Perpetual Contracts positions.
Example: BTC3L and BTC3S.
BTC3L refers to a Leveraged Token holding long positions of BTCUSDT Perpetual Contracts with 3x leverage.
BTC3S indicates a Leveraged Token holding short positions of BTCUSDT Perpetual Contracts with 3x leverage.
In the example above, the plus symbol (+) refers to (L) long positions, the minus symbol (−) to (S) short positions, and "3" represents the target leverage ratio after rebalancing.
Net asset value (NAV) refers to the price of a Leveraged Token. The NAV of a Leveraged Token moves in line with the price fluctuations in the Perpetual Contracts market.
Using BTC3L and BTC3S as an example,
BTC3L: For every 1% increase in the BTCUSDT price, the NAV of BTC3L will rise 3%.
BTC3S: For every 1% decrease in the BTCUSDT price, the NAV of BTC3S will rise 3%
There are five types of fees that will be incurred in Bybit Leveraged Token trading: trading fee, purchase fee, redemption fee, management fee and funding fee.
Each fee is calculated as follows:
Fee Calculation | |
Trading Fee | Filled Order Quantity × Spot Trading Fee Rate* * Spot Trading Fee Rate: 0.1% |
Purchase Fee | Purchase Quantity × Purchase Price × Purchase Fee Rate* * Purchase Fee Rate: 0.1% |
Redemption Fee | Redemption Quantity × Redemption Price × Redemption Fee Rate* * Redemption Fee Rate: 0.1% |
Management Fee | Net Asset Value × Position Quantity × Daily Management Fee Rate* * Management Fee Rate: 0.02% |
Funding Fee | Position Value × Funding Rate |
For more information, please refer to Bybit Leveraged Tokens: Fees Explained.
Rebalancing is a process to make sure that the Perpetual Contracts positions of the underlying asset will be dynamically adjusted to achieve the target leverage. The rebalancing mechanism will be automatically triggered when the actual leverage ratio falls outside the target leverage range.
Bybit Leveraged Tokens have a targeted leverage range. The rebalancing mechanism only activates when the actual leverage exceeds the target range.
Taking BTC3L as an example, the target leverage range is [2,4]. The rebalancing mechanism will automatically be triggered when the actual leverage ratio is ≥ 4x or ≤ 2x, to be adjusted to achieve the target leverage of 3x.
However, please be aware that the NAV of a Leveraged Token could fall to zero, as the rebalancing mechanism may not be able to keep pace with volatile price movements. This would result in the system failing to adjust the Perpetual Contracts positions of the underlying asset accordingly when the actual leverage fluctuates beyond the targeted range in extreme market movements.
Due to the rebalancing mechanism, the Leveraged Token is more suitable for short-term investment in a one-sided market.
In a volatile market, the actual leverage may frequently exceed the target leverage range. This means that the rebalancing mechanism will be triggered accordingly in order to maintain leverage within the target range. Thus, Leveraged Tokens are not suitable for long-term investments.
You can trade a Leveraged Token in the following two ways:
Buy and Sell
Purchase and Redemption
Leveraged Token trading will be channeled directly through your Bybit Spot Account.
Leveraged Tokens can be traded (Buy or Sell) on the Spot market. Using BTC3L as an example, traders can go to the BTC3L/USDT Spot market and buy or sell BTC3L.
Notes:
— The price of the Leveraged Token in the Spot market reflects the result of buying and selling behavior in the Spot market. This causes a slight difference between the price of the Leveraged Token and its NAV.
— 0.1% of the Spot trading fee will be charged.
Leveraged Tokens can be traded (Purchase or Redeem) in accordance with the Perpetual Contracts positions of the underlying asset in the basket.
Notes:
— Purchase and Redemption are based on the NAV of Leveraged Tokens.
— 0.1% of the Purchase or Redemption fee will be charged.
To learn more about how to get started with Bybit Leveraged Tokens, please refer to the following two articles:
With Bybit, some of the differences between Leveraged Tokens and Derivatives trading are as follows:
Leveraged Token(s) | Derivatives Trading Products | |
Margin Requirement | No | Yes |
Leverage Range | Targeted Range | No Fixed Range |
Liquidation | No | Yes |
Trading Methods | Buy and Sell Purchase and Redemption | Long and Short |
Investment Scenario | One-Sided Market | Volatile Market |
Let's take a look at the comparison of Leverage tokens and Derivatives trading returns in the following two scenarios.
Long Position
As shown in the table above, the price of the BTCUSDT Perpetual Contract increased from $40,000 to $54,868, which is a 37.17% increase over a period of four days.
Under the same Perpetual Contract market fluctuations:
If Trader A has opened a long position of a BTCUSDT Perpetual Contract with 3x leverage, the ROI is 111.51%.
If Trader A has instead opened a long position of the Leveraged Token BTC3L, the ROI is 117.28% over the four-day period, which is a higher return than that of holding a 3x leverage BTCUSDT Perpetual Contract.
Short Position
As shown in the table above, the price of the BTCUSDT Perpetual Contract increased from $40,000 to $54,868, which is a −37.17% return over a period of four days.
Under the same Perpetual Contract market fluctuations:
If Trader B held a short position of a BTCUSDT Perpetual Contract with 3x leverage, the ROI is −111.51%, and the position would have been liquidated.
If Trader B had instead held a short position of the Leveraged Token BTC3S, the ROI would be capped at −70.37%, without liquidation or margin loss.
Long Position
In the table above, the price of BTCUSDT Perpetual Contracts fluctuates greatly on a daily basis, with a net increase of 0% at the end of the five-day period.
Under the same Perpetual Contract market fluctuations:
If Trader A holds a long position of BTCUSDT Perpetual Contracts with 3x leverage, the ROI is 0%.
If Trader A had opened a long position of the Leveraged Token BTC3L instead, the ROI would have been −8.33%, which is a lower return than that of holding a 3x leverage BTCUSDT Perpetual Contract.
Short Position
In the example above, the price of BTCUSDT Perpetual Contracts fluctuates greatly daily, with a net increase of 0% at the end of the five-day period.
Under the same Perpetual Contract market fluctuations:
If Trader B holds a short position of a BTCUSDT Perpetual Contract with 3x leverage, the ROI is 0%.
If Trader B had opened a long position of the Leveraged Token BTC3S instead, the ROI would have been−13.33%, which is lower than that of holding a 3x leverage BTCUSDT Perpetual Contract.
You can see from the above examples that, compared with other derivatives products, a Leveraged Token performs better in a one-sided market, but worse during times of extreme market volatility.
For Leveraged Tokens in a one-sided market, when the market moves in the same direction as your position, you can potentially maximize your profit with leverage. And if the market moves against your position, Leveraged Tokens can help you minimize your losses.
Leveraged Tokens are suitable only for short-term investments, due to their performance in volatile markets. Please invest in Leveraged Tokens only after you feel you understand the product completely.
All Leveraged Tokens carry built-in decay. In a volatile market, built-in decay may negatively impact your total returns. To minimize net losses through built-in decay, Bybit’s Leveraged Token offers traders a transparent rebalancing mechanism. Rebalancing will only take place when the actual leverage falls beyond a targeted range of leverage.