You might have seen coins on Binance with UP and DOWN in their name, for example, ETHUP or ETHDOWN. These are examples of Binance Leveraged Tokens(BLVT)

In a nutshell; these tokens allow you to get leveraged access to a cryptocurrency, without fear of liquidation or the worry of maintaining margin and collateral.

Let’s take an example:

Faizan sees that the market is going down and thinks this is a great moment to short ETH. However, he is scared of choppiness and doesn’t really want to go through the hassle of maintaining a futures position. So what does he do? He buys ETHDOWN, and sees his gains go through the roof!

But how does all this actually work?

Let’s get nerdy 🤓

Each leveraged token represents a basket of perpetual contract positions. So continuing with our example of ETHUP, a basket of ETHUP leveraged tokens could have x number of contracts in ETHUSDT futures.

The primary means of measurement for Leveraged Tokens is Net Asset Value(NAV). The formula for NAV is as follows:

Net asset value (NAV) = ((1 / Actual leverage multiplier) × Basket position × Price of underlying asset) / Issued tokens.

In short; NAV is is the price of a leveraged token. And this price is driven by the base coin’s performance and its associated leverage.

Unlike conventional leveraged tokens (not managed by Binance), Binance Leveraged Tokens do not maintain constant leverage. Instead, Binance Leveraged Tokens attempt to maintain a variable target leverage range between 1.25x and 4x. This would maximize profitability on upswings and minimize losses to avoid liquidation. However, do note that the real leverage may fluctuate beyond the target range in extreme market movements.

The real leverage ratio is the actual leverage ratio held by the algorithm. Real leverage ratio changes when the ratio of futures position (notional value) to fund size, or in other words:
Real Leverage Ratio = Futures Position (notional value in USDT) / Fund Size

Where:

Futures position (notional value) = Number of contracts x Price of BTCUSDT futures

Fund size = Number of tokens issued x NAV