Leveraged assets allow traders to benefit from crypto volatility without the high risks associated with margin trading. Waves.Exchange is the latest among major exchanges to implement leveraged tokens – and the first to do it using smart contracts.
Leveraged assets: a low-risk alternative to margin trading
The traditional way to gain leveraged exposure to crypto assets is to borrow funds from an exchange. In case of a successful deal, the trader can multiply their gains. But if the market goes against them, the lender may force a liquidation of the open positions.
Leveraged assets offer a way to achieve the same objective with less risk. Their price follows the volatility of the underlying asset. For instance, a 3x leveraged token can yield 3% in profits if the underlying asset appreciates by 1%.
New decentralized offerings by Waves.Exchange: BTCUP and BTCDOWN
Waves.Exchange offers two kinds of leveraged tokens:
1) BTCUP – a ‘bull’ asset that appreciates when the price of BTC increases;
2) BTCDOWN – a ‘bear’ token whose price goes up when that of BTC decreases.
The target leverage level for both assets fluctuates between 1.5x and 3x in order to minimize potential losses and increase gains. The leverage level is rebalanced whenever the price of BTC changes.
Both leveraged assets are traded for USDN (Neutrino USD) – a decentralized stablecoin pegged to the dollar. USDN is in itself an attractive investment asset, since it yields 12-15% a year through staking.
One of the key strengths of BTCUP and BTCDOWN is that they can’t be liquidated: the exchange cannot issue a margin call, no matter how much the price changes. The leverage tokens work just like any other crypto asset: they can be held indefinitely or sold as needed.
Key differences from leveraged tokens on other exchanges: transparency and use of smart contracts
There is a major difference between the leveraged tokens on Waves.Exchange and similar assets on other platforms. BTCUP and BTCDOWN run on a smart contract and are backed by a verifiable collateral in USDN. Any user can review the state of the contract and collateral in Waves Explorer. Other exchanges, such as Binance and Poloniex, can’t offer such a level of transparency.
Another important advantage is that the target leverage formula is publicly available and the current leverage level is clearly displayed. By contrast, Binance uses a strictly confidential algorithm and never displays the real leverage figure.
Very importantly, holders can redeem BTCUP and BTCDOWN for USDN at any moment through the smart contract by paying a 1% blockchain fee. This means that a trader can readily convert their leveraged tokens into stablecoins, independent of the liquidity in the open market.
A better way to gain leveraged BTC exposure
BTCUP and BTCDOWN are an easy way to maximize one’s gains in the Bitcoin market without the risk of getting a margin call. Thanks to the instant redeem feature, traders can seamlessly shift between trading leveraged assets when the market is trending and staking USDN during periods of consolidation.
The fully transparent and decentralized character of BTCUP and BTCDOWN distinguishes them from the tokens offered by other exchanges and represents a serious step forward in the development of leveraged assets. Detailed information is available on Waves.Exchange.