Have you seen this down trades?

Binance Leveraged Tokens (BLVT) and How To Trade Them in ProfitFarmers

Contents

Hi ProfitFarmer!

You might have come across “DOWN” and “UP” signals within our platform. They look something like this:

Profitfarmers Down Trading Card

If you then decide to enter these trades, you may find either an error report that says:

Cancelled | Error in primary order | last state: PENDING
This action is disabled on this account.

Or you could just find it impossible to enter the trade.

Don’t worry! You can fix this by following these steps:

  1. Log in to your Binance account.
  2. Go to Binance Page
  3. You will come across this Risk Disclaimer. Read it thoroughly and tick the box that says you are over the age of 18.
  4. That’s it! This should fix the issue, now you can carry on trading!

Binance Leveraged Token Risk Disclosure Statement

However, the question still remains: what are they and why do they exist? Hold on to your thinking caps as the explanation might be technically complicated.

These “DOWN” and “UP” coin pairings are Binance’s Leveraged Tokens, or BLVT for short.

What are Binance Leverage Tokens?

The description Binance gives for these Tokens are as follows:

Binance Leveraged Tokens are tradable assets in the Binance spot market that give you leveraged exposure to the underlying asset. Each leveraged token represents a basket of perpetual contract positions. The price of the tokens tracks the change in notional amount of the perpetual contract positions in the basket and changes in the multiples of leverage level.”

That may sound very complicated, but put simply these Leverage Tokens are tokenized versions of leveraged future positions. However, unlike leveraged trading, Leverage Tokens gives you the advantage of entering into a leveraged position without the hassle of having collaterals, maintaining margin maintenance, and the anxiety-inducing liquidation risks common to leverage trading.

The design of leveraged tokens was introduced by the exchange FTX. These tokens have been highly debated throughout their existence because they don’t perform as you would expect on a longer-term basis (spoiler alert: It’s because of Volatility Drag). However, the leveraged tokens found in Binance (BLVT) propose an alternative design.

Unlike the conventional leveraged token, BLVTs do not maintain a constant leverage. What they do instead is to aim for a target range of variable leverage. This would maximize profitability on upswings while minimizing losses to avoid liquidation.

An important thing to keep in mind is that the Binance Leveraged Tokens are only listed and tradable within Binance, and you won’t be able to withdraw them to a separate wallet. (Also note that Binance Leveraged Tokens aren’t issued on-chain.)

The first available Binance Leverage Tokens are “BTCUP” and “BTCDOWN”. As the name implies, BTCUP aims to generate leveraged gains when the price of Bitcoin goes up, while BTCDOWN aims to generate leveraged gains when the price of Bitcoin goes down.

Binance Leveraged Tokens

How do they work?

As we said before, the main difference between BLVTs and other types of leveraged tokens is that BLVTs do not try to maintain constant leverage. They aim for a target range of variable leverage

In the case of BTCUP and BTCDOWN, the target range is between 1.5x and 3x, which then acts as a perpetual leverage target for the tokens. The idea for having variable leverage is to maximize the potential gains when the price goes up and minimize the risks of liquidation when the price goes down.

What is the advantage of BLVT’s over the conventional Leverage Tokens?

Leveraged tokens have been highly debated because of a concept called volatility drag

The problem with the Conventional Leveraged tokens is that they generally perform as you’d expect when there’s a strong trend, and market momentum is high. But when the market is sideways, the performance of the tokens are negatively affected. 

Binance created the variable leverage as a solution to this problem. BLVTs only rebalance during times of extremely high volatility and aren’t forced to periodically rebalance otherwise. 

This doesn’t solve the problem completely, but it greatly reduces the long-term effects of volatility drag on the performance of BLVTs.

That concludes our short summary of the recently created Binance Leverage Tokens (BLVTs). You can now easily trade these coin pairs when they appear on our platform with a well informed decision.

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