How does rebalancing work?

How does rebalancing for BTCSHORT work? This short article breaks it down for you.

What is rebalancing?

As mentioned in previous educational posts, BTCSHORT is an Ethereum-based inverse token that seeks to provide a notional exposure to the inverse or -1x the daily performance of Bitcoin on any given day. This means that if the price of Bitcoin increases by 5% in a day, BTCSHORT’s price will decrease by 5% in a day (before any fees or expenses are applied). One key aspect of BTCSHORT’s operations is its daily rebalancing where the exposure of BTCSHORT is reset daily at 5 PM Central European Time (CET) to achieve the appropriate asset levels to maintain the implied notional exposure of -1x of Bitcoin’s daily returns. This is called rebalancing.

How does it work?

At 5 PM CET everyday, we will capture the current token value — how much in USDC the total outstanding amount of tokens are worth — of BTCSHORT in the smart contract and compare that with the current USD price of the reference crypto asset to determine the new appropriate exposure levels. The leveraged factor for BTCSHORT is -1x due to the fact that it aims to maintain notional exposure to -1x of Bitcoin’s daily performance. The exposure can change due to price action — for example, if BTCSHORT were to double in value in a single day due to Bitcoin’s price falling by half. The reset or rebalance will help correct BTCSHORT’s exposure. This periodic resetting means that a constant -1x leverage factor is maintained for every holder over that one-day period.

The equations below explain this point in more detail:

USDC in Smart Contract: 20,000 USDC
Bitcoin Borrowed in Token: 1 BTC
Current Bitcoin Price: 10,000 USDC
Total Token Supply: 100
Net Token Value 20,000 - 10,000*1 = 10,000

For BTCSHORT, there will always be a 2:1 ratio between the amount of USDC in its smart contract and the USDC amount of BTC that is being borrowed in order to short sell to provide -1x exposure to Bitcoin.

Let’s look at what happens when Bitcoin falls from $10,000 to $9,900:

USDC in Smart Contract: 20,000 USDC Bitcoin Borrowed in Token: 1 BTC
Current Bitcoin Price: 9,900 USDC
Total Token Supply: 100
Net Token Value: 20,000 - 9,900*1 = 10100
Ratio of USDC in the contract to the amount of Bitcoin Borrowed: 2.020202

To get the ratio back to 2:1, we would need to increase the Bitcoin borrowed to 1.020202. Our trading engine would then submit an order to a lending desk to borrow 0.020202 to then sell on a trading venue at a price of 9,900 to bring us with the below amounts.

USDC Amount: 20,200 USDC
Bitcoin Borrowed: 1.020202 BTC
Current Bitcoin Price: 9,900 USDC
Total Supply: 100
Ratio of USDC in the contract to the amount of Bitcoin Borrowed: 20,200 / (9,900*1.020202) = 2

The table summarizes the changes in the price of Bitcoin as well as the different holdings of BTCSHORT in the three different periods outlined above.


Understanding how BTCSHORT’s rebalancing works is key to being able to use the token sensibly. As we have shown in this short article, BTCSHORT rebalances on a daily basis in order to ensure that the ratio of USDC in the BTCSHORT smart contracts maintains its 2:1 ratio with the amount of Bitcoin borrowed. This mechanism works the same in cases where Bitcoin’s performance hits the performance threshold of ±33% and is important to understand as it explains how BTCSHORT is able to maintain its notional exposure to Bitcoin’s -1x daily performance. BTCSHORT is a useful tool to allow token holders to get notional exposure to the inverse (-1x) of Bitcoin’s daily performance.


This document has been prepared and issued by Amun Limited (“Amun”). This document may contain market commentary. All information used in the publication of this document has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this document or the information contained/referenced herein.

This document may contain independent market commentary prepared by Amun based on publicly available information. Although Amun endeavors to ensure the accuracy of the content in this document, Amun does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this document make no warranties or representation of any kind relating to such data. Where Amun has expressed its own opinions related to product or market activity, these views may change. Neither Amun, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this document or its contents.

Crypto asset trading involves a high degree of risk. The crypto asset market is new to many and unproven and may have the potential to not grow as expected. Currently, there is relatively small use of crypto assets in the retail and commercial marketplace in comparison to relatively large use by speculators, thus contributing to price volatility that could adversely affect an investment in crypto assets. In order to participate in the trading of crypto assets, you should be capable of evaluating the merits and risks of the investment and be able to bear the economic risk of losing your entire investment.

Nothing in this document (or any other documents mentioned herein) is or should be considered to be an invitation to enter into an investment and is not intended to be an offering of securities in any jurisdiction nor does it constitute an offer or an invitation to sell shares, securities or rights belonging to the Issuer or any related or associated company. This document has not been registered with or approved by any regulator in any jurisdiction. Readers are cautioned that any historical performance information or forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results or performance may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax, or other advice and users are cautioned against basing undue reliance, investment decisions or other decisions solely on the content hereof.

Any historical performance included in this document may be based on back testing which is a means of evaluating a particular strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested performance is purely hypothetical and is provided in this document solely for informational purposes and neither represents actual performance nor should it be interpreted as an indication of actual or future performance.

The Tokens are complex products which incorporate a high degree of risk and should only be bought or traded in by persons with appropriate technical knowledge who have experience with similar products.

The Tokens have not been registered with or approved by any regulator in any jurisdiction. The Tokens are not available for purchase by individuals or entities who are ordinarily resident in the United States, Switzerland, the Seychelles or any other country on the Prohibited List.

The Issuer reserves the right to restrict the sale of the Tokens in any jurisdiction or to any individuals or entities from time to time.

Please see our legal documents for more information.

Amun Updates

Subscribe to receive the latest token insights.