Binance CEO, Changpeng Zhao, took to twitter to explain his decision to delist FTX 3X leveraged tokens and their corresponding trading pairs. He claimed that although this was “not an easy choice”, users didn’t seem to understand them.
A leveraged token is essentially a token that hold a leveraged position. The trader can trade more cryptocurrency than they own. They can use extra capital to place bets on the future prices of cryptocurrencies and gain more if predicting correctly. They will also loose more if they are wrong.
This means that when they buy leveraged tokens, traders do not have to margin trade manually, but with a leveraged token the work is done for you. Leveraged tokens reinvest profit that is made, while minimizing risk.
Reinventing leveraged ETFs
Leveraged tokens as a concept is nothing new. Tokenization mimics the idea of ETFs (Exchange Traded Funds), which have been very popular in the equity markets. Leveraged ETFs have been available for a long time, letting retail investors trade almost any commodity or financial product with leverage through their stock broker – The same way tokens let retail investors trade on a crypto exchange.
Only for short term trading
The problem with the leveraged tokens is that they are not meant for long term holding. They devalue over time, with market fluctuation.
The decision to remove the leverages tokens comes a short two months after adding them to the exchange. As of 10am on March 31, these tokens will be delisted and users will be compensated the BUSD. That is if users have not traded out their existing leveraged token positions, or withdrawn their assets, two hours prior to this 10 am deadline.