Crypto glossary
Leveraged token
A leveraged token is a tradable token that targets a fixed multiple of an asset's daily return, such as 3x long BTC, rebalancing to keep leverage constant.
Leveraged tokens package a leveraged derivatives position into a token that can be bought and sold like a spot asset. Behind each one, the issuer holds perpetual futures sized to a target leverage, for example three times long or three times short, and rebalances them regularly or when the market moves sharply so the leverage returns to target.
They appeal to retail traders because there is no margin to manage and no liquidation price: the worst case is that the token loses most of its value. Exchanges such as Binance, Bybit and others have listed them under names like BTCUP or ETH3L, and leveraged crypto ETFs on traditional markets work on the same principle.
The daily reset causes volatility decay. In a choppy market that ends where it started, a 3x token loses value because it buys after rises and sells after falls. Over periods longer than a day, returns can differ greatly from three times the asset's move, and management fees and funding costs add up. They are designed for short-term trading.
Example
Bitcoin rises 10 percent one day and falls 9.1 percent the next, ending flat, but a 3x long token gains 30 percent and then loses 27.3 percent, leaving it about 5.5 percent lower.