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You may have never heard of the UP and DOWN leveraged tokens that are available on the Binance cryptocurrency exchange. In practice, they are not common cryptocurrencies and function more like ETFs.
These digital assets – such as BTCDOWN, XRPDOWN, ADADOWN, ETHUP, BTCUP etc – are tradable assets on the Binance spot market and are “created” based on the price of cryptocurrencies.
That is, they are backed by the most popular cryptocurrencies on the market, such as BTC, ETH, XRP and Cardano.
Each token represents a “basket” of open positions on the perpetual futures market. So an UP or DOWN token is essentially a tokenized version of leveraged futures positions.
But is it worth investing in these assets?
UP and DOWN cryptocurrencies
UP tokens follow the natural movement of “original” cryptocurrencies. For example, when BTC goes up, BTCUP also goes up. On the contrary, if BTC depreciates, BTCUP also depreciates.
On the other hand, DOWN tokens do the opposite. So when ETH, for example, depreciates, ETHDOWN appreciates and vice versa.
In practice, this allows you to “bet” on the fall of a cryptocurrency and profit even in bearish cycles.
Thus, if the trend of a cryptocurrency is downward and the investor believes that the price will continue to fall, he can invest in the DOWN version of this cryptocurrency and profit from it.
No settlement risk
The great differentiator of these digital assets is that there is no settlement risk. That is, if a user buys BTCUP and BTC falls, he will not be liquidated, he will not lose the invested amount.
So, when BTC rises again – and BTCUP follows suit – it can return to profit and take profits whenever it wants.
In other words, the investor will only lose money if he sells, as it works in the “traditional” crypto market.
Leverage
Another feature of Binance’s UP and DOWN tokens is leverage. For this reason, these tokens are also called “Binance Leveraged Tokens (BLVT)”.
In this sense, UP tokens are intended to generate leveraged gains when the price of the original token rises. Likewise, DOWN tokens allow you to profit even more when the price of the original crypto asset drops.
As there is no liquidation risk in this market, users can enjoy the enhanced gains that leveraged products provide without having to worry about managing a leveraged position.
Also, BLVTs do not attempt to maintain a constant leverage value. Instead, they set a variable leverage target range.
In the case of BTCUP and BTCDOWN tokens, for example, the range is between 1.5x and 3x. So, the idea is to maximize the possible gains when the price goes up and minimize the risks when the price goes down.
Fees
Leveraged tokens can be redeemed for the value they represent. Upon redeeming the BLVTs through this process, the investor will receive the value of the tokens in USDT, a stablecoin paired with the dollar.
However, in this case, you will need to pay a 0.1% redemption fee on the value of your tokens. Hence, in most cases, it is better to exit your position on the spot market itself than through the redemption process.
Also, to trade leveraged tokens you need to pay trading fees. The updated values can be consulted on here.
In addition, you must pay an administrative fee of 0.01% per day. Amount equivalent to an annualized rate of 3.5%. Because of this fee, experts do not recommend holding leveraged tokens.
So, is it worth investing?
BLVTs tokens serve for the investor to leverage the position in a simpler way.
However, this type of investment is not recommended for any investor. This is because it requires a little more knowledge about the operation and the associated risks:
Although they can provide you with maximizing gains with leverage, and allow you to profit even when the market is down, these investment products are not suitable for everyone, as they require a certain knowledge of the market to understand what you are doing. These tokens represent positions in the perpetual futures market, so it is not such a simple operation, nor such a direct exposure.
