Leveraged tokens are Ethereum-based ERC-20 tokens created by Amun to give token holders easy access to leveraged long and short daily returns of cryptoassets like Bitcoin and Ether. To put it simply, a leveraged token maintains notional exposure to 3x or -3x of the daily returns of a crypto asset like Bitcoin or Ethereum.
This made possible through the use of Amun’s Jasper platform which facilitates margin positions in the cryptoassets in question both for long and short positions through the use of perpetual swaps, whilst also rebalancing on a daily basis in order to maintain daily notional leveraged exposure.
To give an example, our Amun Bitcoin 3x Daily Long (BTC3L) tokens maintain notional exposure to 3x of the daily returns of Bitcoin and our Amun Ether 3x Daily Short (ETH3S) tokens maintain notional exposure to -3x of the daily returns of Ether. This means that if Bitcoin were to rise by 3% on a single day then BTC3L would aim to rise by 9% on the same day. The use of these tokens greatly improves the user experience of maintaining leverage to cryptoassets by allowing traders to not worry about managing funding rates or borrowing costs — while at the same time allowing token holders to move their positions between exchanges. in addition, they make the probability of your position getting liquidated extremely unlikely.
How leveraged tokens work
Let’s take a very simple example; what would happen to the prices of BTC3L and Bitcoin 3x Daily Short (BTC3S) tokens if Bitcoin’s price over 3 days is as follows: Day 0 — $100, Day 1 — $103, Day 2 — $106.09, in other words two days of Bitcoin increasing by 3%. We assume that Bitcoin, BTC3L, and BTC3S all begin day 0 at a price of $100. The table below shows the assets’ return profile over those days.
As we can see, both BTC3XLONG and BTC3XSHORT track 3x and -3x of Bitcoin’s returns over a single day. Please note that these tokens do not track 3x or -3x of Bitcoin’s returns over multiple days.
For example, it’s easy to see that the two day return of BTC3L (18.81%) is actually more than 3x of Bitcoin’s (6.09%) and the two day return of BTC3S (-17.19%) is actually less than -3x of Bitcoin’s. This phenomenon is due to the compounding of our inverse and leveraged tokens and can be beneficial in situations where the market is following a trend but harmful in periods of mean reversions. The chart below replicates the data from the table above to further show the point.