お知らせ How to Use Smart Rebalance to Short Leveraged Tokens?

How to Use Smart Rebalance to Short Leveraged Tokens?

2024-06-26 08:28:25 UTC 1161 読む

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Leveraged tokens are similar to ETF products in traditional finance, tracking the ups and downs of a given underlying asset, with the magnitude typically three or five times that of the underlying asset market. Unlike traditional leveraged trading, users do not need to pay any margin when trading leveraged tokens. They achieve leveraged trading simply by buying and selling coins. Each leveraged ETF product corresponds to a contract position managed by the platform's fund manager, allowing users to easily build their own constant leverage investment portfolio without needing to understand the specific mechanisms.

## 1.What are Leveraged ETF Tokens?
Leveraged ETF tokens are synthetic assets that replicate the performance of underlying assets through a basket of financial instruments such as futures contracts, amplifying their gains and losses. Leveraged tokens come in various types, including both long and short leveraged tokens. For example, BTC3S-USDT represents a 3x short for BTC, where "S" stands for short.

## 2.How Leveraged ETF Tokens Work？
Leveraged ETF tokens maintain their target leverage through a dynamic rebalancing mechanism. For instance, BTC3S-USDT achieves three times the profit when the BTC price falls by holding a corresponding amount of futures contracts. To maintain this leverage ratio, the ETF manager regularly adjusts the holdings to cope with market price fluctuations.

Specifically, this includes:

**2.1 Leverage Multiplier:** Leveraged tokens are designed to track the price changes of an underlying asset and magnify these changes. For example, a 3x long leveraged token (3L) will rise by 3% if the underlying asset price rises by 1%; similarly, a 3x short leveraged token (3S) will rise by 3% if the underlying asset price falls by 1%.

**2.2 Daily Rebalancing**: Leveraged tokens typically rebalance daily to maintain the designated leverage. This means the fund manager adjusts the holdings daily to ensure a constant leverage ratio. This daily rebalancing mechanism means the performance of leveraged tokens is based on daily returns rather than long-term returns.

**2.3 Decay Cost:** Due to daily rebalancing (daily profits and losses will be settled as realized profits and losses instead of floating ones), this mechanism leads to so-called "decay cost," especially in volatile markets. Decay costs arise from frequent buying and selling and management fees, accumulating during daily rebalancing and potentially deviating the long-term performance of leveraged tokens from expectations.

**Short Leveraged Token Case Study**

Suppose a cryptocurrency like BTC is currently priced at $10,000. You buy a 3x short leveraged token (BTC3S) with an initial investment of $1000. If BTC's price falls by 10% to $9,000, BTC3S's performance would be as follows:

BTC Falls by 10%: Underlying asset falls by 10%.
3x Short Leverage: As it's a 3x short leveraged token, the token should rise by 30%.
Token Value: Initial investment of $1000 rises by 30% to a new value of $1300.

However, if BTC's price rebounds by 10% to $11,000, BTC3S's performance would be as follows:

BTC Rises by 10%: Underlying asset rises by 10%.
3x Short Leverage: As it's a 3x short leveraged token, the token should fall by 30%.
Token Value: Initial investment of $1000 falls by 30% to a new value of $700.

## 3.Leveraged Tokens vs. Regular Futures Contracts

Regular Futures Contracts:

During the holding period of futures contracts, unrealized gains and losses fluctuate with market price changes, known as floating profits and losses.
For example: Buying one BTC with 1000USDT and the next day BTC's price drops to 800USDT. Your floating loss is 200USDT because you haven't sold it. If the price rises to 1000USDT on the third day, your book value remains at 1000USDT.

Upon closing a position, floating profits and losses become realized profits and losses.

For example: Buying one BTC for 1000USDT, and selling it the next day when the price drops to 800USDT, realizes a loss of 200USDT. Even if the price rises to 1200USDT on the third day, your book value remains at 800USDT.

Leveraged Tokens (ETFs):

Leveraged tokens rebalance daily, settling daily profits and losses.
For example: Holding a leveraged token, if the price drops from 1000USDT to 800USDT, resulting in a floating loss of 200USDT, this loss is realized due to daily rebalancing.

Even if the price rises back to 1000USDT the next day, your book value remains at 800USDT because the previous loss has been realized.

## 4.Naming Convention of Leveraged ETF Tokens

Leveraged ETF tokens typically have numerical and alphabetical suffixes indicating their leverage multiplier and direction. For example, "3S" represents 3x short, "5S" represents 5x short, and "3L" represents 3x long. Through these suffixes, traders can easily identify the characteristics of tokens.

## 5.Using Smart Rebalance Strategies for Short Leveraged Tokens

**5.1 What is Smart Rebalance Strategy?**
Smart Rebalance is a trading strategy derived from the asset-based investment philosophy. It involves adjusting the position of the portfolio to maintain the proportion of digital assets within a certain range, allowing the portfolio to return to its initial setup. When a digital asset shows strong upward momentum, Smart Rebalance distributes profits to other digital assets in the portfolio, stabilizing overall returns. In a downtrend, the portfolio's decline may be less than that of a particular digital asset, ultimately achieving relatively stable returns.

**5.2 Advantages of Smart Rebalance Strategy**
There are several advantages to using Smart Rebalance:

Risk Management: By dynamically adjusting positions, it effectively controls risk, avoiding significant losses due to market fluctuations.

Optimized Returns: Smart Rebalance adjusts positions timely according to market trends, maximizing returns.

Ease of Operation: The automated rebalancing mechanism reduces the complexity and errors of manual operations.

Case Study

Suppose User A predicts that the price of BTC (BTC) will decline over a period. To maximize profits, they decide to use Smart Rebalance for short leveraged tokens and choose BTC3S-USDT (3x short BTC token).

Step 1: Choosing the Right Leveraged Token

Select BTC3S-USDT leveraged token, meaning the token's price will change three times faster in the opposite direction of BTC's price. If BTC's price falls by 1%, the BTC3S-USDT token's price will rise by 3%.

Step 2: Determining the Initial Position

Assume BTC's price is 30,000USDT, and User A invests 10,000USDT in BTC3S-USDT tokens when the token price is 10USDT, buying 1,000 tokens.

Step 3: Market Monitoring and Smart Rebalance

As time passes, BTC's price starts to decline. To maximize profits and reduce risk, User A implements a Smart Rebalance strategy.

Initial Scenario:

BTC Price: 30,000USDT

BTC3S-USDT Token Price: 10USDT

Holding: 1,000 tokens

Holding Value: 10,000USDT

When BTC's price falls by 10% (to 27,000USDT):

BTC3S-USDT Token price rises to 13USDT (up 30%).

Holding value becomes 13,000USDT (1,000 tokens * 13USDT).

Smart Rebalance strategy sells 300 tokens, locking in a profit of 3,900USDT and maintaining the remaining position at 700 tokens, worth 9,100USDT.

When BTC's price continues to fall by 5% (to 25,650USDT):

BTC3S-USDT Token price rises to 15.6USDT (up 20%).

The value of remaining 700 tokens becomes 10,920USDT (700 tokens * 15.6USDT).

Smart Rebalance strategy sells another 200 tokens, locking in a profit of 3,120USDT and maintaining the remaining position at 500 tokens, worth 7,800USDT.

Step 4: Realizing Final Profits
Suppose BTC's price eventually drops to 24,000USDT, and the remaining tokens are sold:

BTC3S-USDT Token price rises to 18USDT (up 15%).

The value of 500 tokens becomes 9,000USDT (500 tokens * 18USDT).

**Summary of Profits**
Through Smart Rebalance, User A locked in profits throughout the process, reducing the impact of price fluctuations. Their total profits are calculated as follows:

Initial Investment: 10,000USDT

First Rebalancing: Sold 300 tokens, gained 3,900USDT

Second Rebalancing: Sold 200 tokens, gained 3,120USDT

Final Sale: Sold 500 tokens, gained 9,000USDT

Total Profit: 3,900 USDT + 3,120 USDT + 9,000 USDT = 16,020 USDT
Net Profit: 16,020 USDT - 10,000 USDT = 6,020 USDT

## 6.Conclusion
By using ETF leveraged tokens and smart rebalancing strategies, traders can short spot more efficiently. This not only simplifies the operational process but also enhances risk management and profit optimization through smart rebalancing. However, it is important to note that leveraged tokens come with higher risks, so users should fully understand their mechanisms and potential risks when using these tools.

How to Use Smart Rebalance to Short Leveraged Tokens?

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