Binance Launches Leveraged Tokens Despite User Education Problems

Binance is launching leveraged tokens on its cryptocurrency exchange. Although the exchange delisted FTX’s leveraged tokens in March, Binance claims there is a key difference that sets the two offerings apart.

Binance to Add Leveraged Tokens

Binance delisted FTX’s leveraged tokens in March, citing “a lack of understanding” among its users, who are predominantly retail investors.

Just a few days before delisting FTX’s leveraged tokens, Binance was testing options contracts on its platform too. Options are considered to be one of the most complex derivative products. 

Less than two months on, Binance announced the launch of its own leveraged token products yesterday. Binance asserts that its leveraged tokens do not operate like FTX’s.

FTX’s tokens operate exactly like leveraged ETFs. There is a predetermined amount of leverage, say, 3x. At the end of each trading day, the profits and losses are rebalanced to keep the amount of leverage the same (learn more about how it works here).

These rebalances are what introduces complexity in calculating profits and losses for leveraged tokens.

Binance claimed that their tokens won’t rebalance at the end of each day, instead only doing so when it is deemed required, as told to Cointelegraph. The exchange believes this will help longer-term investors hold these positions with better protection from losses.

The lack of rebalancing means that the 1.5x to 3x leverage Binance promises is not actually realistic, as the inherent leverage of the position will rise without them.

As of now, it is unknown when a rebalance is considered necessary. But it is likely to happen when a position hits a certain threshold of risk due to high leverage. The product launch is scheduled for Thursday, May 14, 2020.