Lecture 6: Rebalancing mechanism upgrade

The reason we made the decision of this upgrade is that in the past time, there have been extreme market conditions for a single currency (LUNA1D5S, YFII1D5S). Even users have the right direction, they still got losses on it. That’s why we have seen that it needs to be changed. After this upgrade, the 5X products of BTC, ETH, XRP, ADA, SOL, DOGE, DOT, TRX, AVAX, SHIB will not be affected, and the other 5X products will assume the new rebalancing mechanism.

Based on the last version of the rebalancing mechanism, it will be indicated the anchor price every time when it is rebalanced, to follow the price goes up and down. Therefore, under the continuous unilateral market, the income far exceeds the leveraged contract at the same position. However, another impact of this is that once the spot price fluctuates violently, the net value of the corresponding ETF leveraged token will be rapidly worn out due to the change in the anchor price. When the fluctuation range grows too large, the spot price falls relative to the starting point, the net value of the corresponding 5S product might turn close to zero.

In order to avoid the losses caused by violent shocks to users, we started to upgrade some ETF products rebalancing mechanisms, except BTC, ETH, XRP, ADA, SOL, DOGE, DOT, TRX, AVAX, SHIB. For the rest of the 5X products, we made the following adjustments: when the spot price rises(compared to the anchor price), the corresponding 5L product will not change the anchor price during automatic rebalancing, and the corresponding 5S product will change the anchor price during automatic rebalancing; when the spot price falls(compared to the anchor price), the corresponding 5L product will change the anchor price during automatic rebalancing, and the corresponding 5S product will not change the anchor price during automatic rebalancing. That is, when the user generates profits, the anchor price will not be changed during automatic rebalancing, to avoid the losses caused by severe fluctuations in extreme market conditions. However, during the daily rebalancing (0:00 UTC+8), all products will be re-anchored to the current spot price without adjustment.

This upgrade will bring about the following impacts: 1. 5X product income will be better preserved so that users can withdraw in time; 2. 5X products will reduce the net value wear and erode under volatile market conditions. 3. The income from rolling positions of 5X products will be reduced. Under continuous unilateral market conditions, the upper limit of users' income will be lower than before the upgrade.

Since this upgrade is only for 5X products of all currencies except BTC, ETH, XRP, ADA, SOL, DOGE, DOT, TRX, AVAX, SHIB, and 3X products are not adjusted. Therefore, it may appear that under the continuous unilateral market, the income of 3X products of the same currency exceeds the 5X products.The reason is that the 3X products have more profit from rolling positions than the 5X products.

We promise to do our best to improve our product design, and we also welcome all users to give us suggestions to help us create better ETF products.

Disclaimer

Leveraged ETF is an emerging financial product. The content above does not constitute investment advice. Please watch out investment risks.

Leveraged ETF reduces the risks of liquidation, but in extreme conditions there’s possibility that the price will approach zero and be liquidated. Please pay attention to the difference between order price and net value, to avoid losses.