What are tokens with a credit shoulder and how to make money on them?

Levered tokens tokens is a trading tool with a fixed credit shoulder, automatic reinvestment and low liquidation risk. With a stable trend and a quick change in the price of an asset of tokens with the shoulder, they bring more profits than positions on futures contracts.

The price of tokens with the shoulder is calculated by the formula:

Asset price + (change in asset price × coefficient)

This means that when the asset price changes by 1%, the cost of tokens changes to 1 × x%. For example, Ethbear token coefficient = –3. When ETH falls by $ 10, the cost of EthBear token will increase by $ 30.

The issuer can tie token to any cryptocurrency asset. At the moment, Amun has produced tokens only for BTC and ETH, and the FTX cryptoderivati ​​exchange for 43 coins.

How are tokens with a credit shoulder work?

Emittive exchange produces tokens with shoulder, and traders buy them-in the spot market or directly near the exchanges.

At the expense of the sale of tokens, the exchanges open positions on unlimited futures. If these positions bring profit, the price of tokens with the shoulder grows.

During trade, the cost of tokens is changing, and their provision remains the same. To maintain the value of the credit shoulder, exchanges daily carry out a rebalance. Two scenarios are possible: a position in profit and loss.

So the exchanges support a fixed credit shoulder.

For the release of tokens, issuers take a commission 0.1%, and for a rebalance – 0.03% per day.

What are tokens with shoulder?

There are four types of tokens depending on the price calculation formula:

• Bull: X × price change is needed to earn money;
• Bear: —X × price change, is needed to make money on a fall;
• Hedge: —X × price change, at x = –1, is needed for hedging positions;
• Half: 1/x × price change, is needed for investment with less risk.

X coefficient is the number that sets the dynamics of changes in the price of token with the shoulder. Thanks to the Bull tokens coefficient, the asset prices are growing faster, and Hedge tokens fall during the growth of the asset.

The value of the coefficient is set by the emitent exchange when creating token. The coefficient for Bull and Bear is usually 2 or 3, for HALF – 2, and for Hedge – always 1.

Who produces tokens with a credit shoulder?

The first tokens with the shoulder was released by the FTX cryptocurrency derivatives in August 2019. The tool became popular among traders: the volume of trading tokens with binding to ETH reached $ 1 million per day. By the end of the year, FTX tokens were placed on their sites by other cryptocurrency exchanges.

Currently, tokens with the shoulder release: the FTX cryptoderivati ​​exchange, Amun fintech and Pionex crypto-rhiza.

Here is a list of the most popular tokens with shoulder:

Low risk tokens are only at FTX.

The FTX exchange has the largest liquidity in tokens with shoulder. For example, in August 2020, the volume of trade to tokens with binding to BTC and ETH on FTX amounted to $ 234 million. For comparison: this indicator for Pionex is $ 122 million, and for Amun tokens on Gate.IO – $ 180 million.

How the tokens with the shoulder differ from futures?

The dynamics of the price of the price of tokens with the shoulder is better than in futures

In a trend, the price of token changes stronger than the price of the futures. This means that the holder of tokens will work more than the fuse holder. To compare the dynamics, we multiplied Ethusd prices from April to September 2020 by 3. So we simulated a change in the price of the futures with the shoulder 3x.

Then we compared the cost of the futures of Ethusd and the Ethbull token. The schedule is visible in dynamics.

In the conditions of the trend, Ethbull (red) brought 400% of profit, and Ethusd with 3X shoulder (blue) – 270%.

In conditions of a stable trend, tokens bring more profits than the usual position with the credit shoulder

Let’s show with an example. July 21, the trader opened a long position in size of $ 1000 under the Ethusd contract with a 3x shoulder. At the same time, he invested $ 1000 in Ethbull tokens on the FTX exchange.

The trader held positions for a week. During this time, Ethusd increased by 25%.

Daily schedule of the Futures of Ethusd on TradeingView. From below – a schedule of price change per day as a percentage.

July 28, the trader closed his position. Futures profit amounted to 75.7%, and the profit by tokens – 101%.

The token position earned 58% more than the futures position.

Thanks to the exchanging exchanging, they do not eliminate the position on tokens

One more example. The trader opened a long position of $ 1000 under the Ethusd contract with a 3x shoulder. Then he bought Ethbull for the same amount.

The trader held positions for a week. At this time, the price of ETH fell by 5% per day.

When the price of Ethusd fell by 33% of the entrance point, the exchange eliminated the futures position. Token position showed a loss of 68% and did not fall under the liquidation.

When the price of an asset falls by a 35%, the futures position fell under the liquidation, and the token position lost 68%.

During the exchanges of the exchange, they move the price of liquidation from the price of the asset at the time of the re -opening of the position. The elimination of token with the shoulder of 3 will occur only when the price moves by 33% per day.

For example, ETH costs $ 300. The trader buys Ethbull tokens with shoulder 3x. Liquidation point for tokens position – $ 200. On the first day, Ethusd closed at $ 267 – the price passed a third distance to the liquidation point. When rebalassing, the exchange will open a position of $ 267 and shift the liquidation point up to $ 178.

When the price of 10% per day changes, the emitators start forced rebalance:

• The FTX exchange carries out Bull tokens with a change in the price of the basic asset by 11.5%, and Bear tokens – when the price changes by 6.7%;
• The Pionex Exchange Rebanses tokens when the actual shoulder differs from 33–66%. This value depends on the type of tokens and the direction of price changes.

On average, the exchanges record losses and push the liquidation point when the price moves by 11%.

How to trade tokens with shoulder?

On a spare exchange. Tokens with the shoulder can be bought and sold like any other cryptocurrency.

Using a deposit. The user makes a deposit to the exchange and requests the release of tokens. The exchange creates new tokens and gives them to the user.

Convert in the wallet. In the FTX exchange wallet, you can exchange any asset for tokens with shoulder.

When to trade tokens with shoulder?

With a long -term trend. The exchange daily reinvests profit during rebalance. In this case, the profit for tokens is greater than in futures.

With conservative trade. Thanks to mandatory rebalance, the exchange does not eliminate the token position during periods of high volatility of the basic asset. When trading futures, you run the risk of losing the whole position, when trading tokens – only part of it.

When you should not trade tokens with shoulder?

With an unstable trend. If during the day the price of the asset moves in different directions, tokens with the shoulder bring less profit than the position on the futures contract.

With intraday trade. You will not wait for the rebalance that reinvest profit. As a result, you will earn as much as in the trade in futures.

How much can you earn on tokens with a shoulder with an unstable trend?

Imagine: the trader invested $ 1000 in a long position for BTCUSD futures and in Bullusd tokens. He held positions for a week, and during this time bitcoin with jerks grew by 10%. The trader earned $ 300 in futures and $ 302 on tokens.

With an unstable trend, Token brought $ 2 more than a futures position.

With a chaotic movement of prices, the trader with a position on the futures fixes a loss once – at the exit from the market. When trading tokens, the trader carries a loss once a day. This approach reduces the position and reduces the total profit.