FTX Leveraged Tokens - Bull Bear Token Mechanics

Romano RNR
13 min readApr 8, 2020


Leveraged tokens are ERC20 tokens that leverage exposure to the market. The price behavior is extracted from trading perpetual futures. The tokens have a powerful design to rebalance dynamically to facilitate and maintain certain leverage. Theoretically, these tokens have a greater-than-usual degree of liquidity due to them being traded in the perpetual futures markets.

When trading, we aim for an edge over others. We are always looking for new ways to increase our profitability, and we are on the lookout for a flexible, rapid method of trading in and out of the market. Leveraged tokens offering you an advantage.

Consult Chad. He expects the market to still go up, then down at any stage in the future believes it will go down. He is looking to maximize his potential profit, and he is eager to take chances, and he is ready to take risks.

Additionally, he is capable of performing in both directions. Utilizing leveraged tokens demonstrates his conviction and while avoiding the possibility of liquidation. He profits from momentum without the need for a margin account.


Then there’s this other guy Melvin. Melvin is diversified in many altcoins, but he will find out in what kind of trouble he’s in when BTC drops, and every other asset will drop too. Chad can hedge his positions with leveraged tokens.

There are three different types of tokens for trading: Bull, Bear, and Hedge.

  • The Bull tokens are ERC20token with 3x long leverage. If ETH perpetual futures go up 10%, ETHBULL goes up 30%
  • The Bear tokens are tokens with 3x short leverage. So if ETH goes up 10%, your ETHBEAR goes down 30%
  • hedge tokens are 1x short. In case if ETH going up 10%, your ETHHEDGE goes down 10%

Leveraged tokens get their price from the perpetual futures. If you buy $5000 on an XTZBULL (Tezos Bull token), it will buy $15000 worth of Tezos perpetual. Now you’re 3x long on Tezos.

Trade leveraged tokens, options, bitcoin/ethereum, and other altcoin futures on FTX with leverage upto 101x

10% discount instead of the normal 5% discount you get from other referral links




There is a lot of confusion floating around leveraged tokens. According to others, liquidation is impossible. If you are long ETHUSD futures and the price shifts 33 percent in the opposite direction of your expectation, you will be liquidated.

An ETHBull leveraged token would sell off enough of its positions to prevent liquidation. By using a stop loss, you will further mitigate the risk of loss.


In contrast to spot trading, you are charged 0.03% percent per day. You are just responsible for the daily management fees, which is reasonable unless you’re planning to hold long-term, this will deplete your account. Trading leveraged tokens are for the short term.

This is just taken out of the net asset value of the leveraged tokens; you won’t see an actual token balance decrease or USD charge in your account.


You can buy these tokens in the same way you would in spot markets. You can look at the order book to get the sell or buy price. Of course, there is a, ‘ but also there is a “convert bull/bear/hedge” convert button which can convert your current token.

According to the documentation of FTX

You can also buy or sell leveraged tokens directly from your wallet page using the ‘CONVERT’ function. If you find a token and click ‘CONVERT’ on the right hand side of the screen, you’ll see a dialog box in which you can easily turn any of your coins on FTX into the leveraged token.

Be sure to verify that you’re getting a fair rate when using the convert feature, and you might get a better rate by using the order book.


Have you ever been trading on Bitmex and heard about “longing your longs”? It’s a strategy when you’re long and in profit with cross leverage and when you use that profit to long more. After your PNL starts to rise, you use that money to buy more contracts, compounding profits. It’s one of the positive sides of trading futures instead of trading options.

Leveraged tokens work the same way. It has an algorithm to be a degenerated gambler that enables you to long your long for you.

If you have a positive PNL, your position size gets increased.

Comparing ETHBULL to a 3x leveraged long position on ETH perpetual swap:

If ETH moves in favor of your position and goes up the next day, ETHBULL does better than a 3x leveraged long position on ETH perpetual swap because it reinvested the profits from the first day back into ETH. It longed your longs!

However, if ETH goes up and then falls back down or retraces a lot, ETHBULL does worse because it increased your exposure. That extra buy will harm your PNL.

When do you buy these leveraged tokens? In strong trends. During chops/sideways movements, you’re better off with trading perpetual swaps. When the market has a strong trend and momentum, leveraged tokens can be insanely profitable.

Risk reduction

Are you one of those who can’t seem to cut his losses until liquidation hits? Fear not! These leveraged tokens are perfect for you!

Leveraged tokens reduce risk if your PNL goes negative to avoid/dodge liquidations.

Let’s compare ETHBULL to a 3x leveraged long position on ETH perpetual swap again.

If ETH goes down one day and then completely fucks you the next day, ETHBULL will do better than a normal 3x leveraged long position on ETH perpetual swap.

After the first loss, ETHBULL sells some of its ETH to return/rebalance to 3x leverage. But if ETH goes down and then back up, ETHBULL will perform worse. It reduces your position after the first loss and so takes less advantage of the recovery. But we all know on a long enough timeline, you would be liquidated anyway, right? ;)

A simplified video made by ColdBloodedShiller

video introduction


You can buy leveraged tokens, just like standard ERC20 tokens on a spot market — no need to manage margin, liquidation price, etc. Just spend your money on a leveraged token and have a managed leveraged position.

If you think this medium article ends by sharing a video from FTX, you’re wrong.


Every day at 00:02:00 UTC, the leveraged tokens ‘rebalance.’ The algorithm tries to reach its targeted leverage again. For bull tokens, this means getting back to 3x leverage, for the bear tokens -3x leverage and hedge tokens to 1x leverage.

Documentation according to FTX

For instance, say that the current holdings of ETHBULL are -$20,000 and + 150 ETH per token, and ETH is trading at $210. ETHBULL has a net asset value of (-$20,000 + 150*$210) = $11,500 per token, and an ETH exposure of 150*$210 = $31,500 per token. Thus its leverage is 2.74x, and so it needs to buy more ETH in order to return to 3x leverage, and will do so at 00:02:00 UTC.

  • FTX periodically monitors the leverage amounts of their leveraged tokens. If any token leverage goes above 4x in magnitude, it triggers a rebalance for that leveraged token.
  • FTX calculates the number of units of the underlying leveraged tokens needed to buy/sell to return to 3x leverage, marked to prices at that time.


  • Try to avoid liquidation: Leveraged tokens reduce your position when the price moves against you, so you won’t get liquidated.
  • Simplicity: It’s no headache to move a leverage slider, cross leverage. It’s as simple as spot buying.
  • Rebalance: rebalance your position to keep the desired leverage.

Leveraged ETFs

Is your brain blown already by the idea of how FTX came up with all this? This idea of bull and bear tokens already existed before FTX outside the cryptocurrency markets. They are called “Leveraged ETFs.”

More info can be found here: https://www.investopedia.com/terms/l/leveraged-etf.asp.

Holding longterm?

If you expect ETH to go up 10%, you expect your bull token to go up 30%, but that’s only a guarantee for that day. Let’s say you hold for 50 days. Let’s assume for 25 days ETH is up 5%, and for 25 days, ETH is down 5%

After this, we’ve got a bit less than 93% of our initial value left.

If the market goes sideways, the tokens are destined to lose money due to portfolio rebalances.

Compounding danger, reinvesting your PNL can be very dangerous with an algorithm for long-term usage in a sideways market/choppy market.

Using the round number of 100, subtract 10%. You arrive at 90. Then add 10%. You get 99. If you reverse the order and add 10% to 100 before subtracting 10%, you get the same result — 99.

The decay happens even faster when you use more significant numbers. Subtract 50% from 100 before adding 50%. You’ll get 75.


If it’s still not clear why holding leveraged tokens long-term is a terrible idea, then let’s go over this again.

Leveraged tokens are not reliable. On leveraged ETFs, you can sometimes see a 2x long and 2x short ETF on the same underlying asset going down more than 1% in the same direction on the daily close.

But leveraged token's convenience of rebalancing can be an inconvenient effect on a long enough timescale.

Imagine the underlying asset (for example, ethereum) goes up 25% on day 1 and down 20% on day 2.

A perfect ETHBULL token goes up 75% on day 1 and down 60% on day 2

At the close of day 2, ethereum is back to its initial price.

(1 + 0.25) * (1–0.2) = 1

ETHBULL perfectly leveraged

(1 + 0.75) * (1–0.6) =0.7

This is what we call beta-slippage. Nothing has changed for ethereum, and yet 30% of your money has disappeared from the table even though the ETHBULL chart shows full recovery.

There are claims that leveraged tokens are a scam, but they are not. They do exactly what’s advertised. It’s the normal behavior of a leveraged token to rebalance. If the price goes in your favor with momentum, you make more money because it reinvests the profit. Leveraged tokens are a double-edged sword.


The market doesn’t move up or down in a straight line. Even in the most substantial bull run, there will be red candles. Leverage tokens will compound your profits. However, the leveraged tokens always lag from their index price (perpetual swap price) and can eventually produce negative returns in the long run.

Leveraged tokens are great for day traders, not for traders who are seeking to stay in a trade for months and months. Leveraged tokens are for short-term trading, not long-term investing.



Leveraged tokens and leveraged ETFs (in the legacy markets) are heavily criticized for making volatility worse in the markets because there’s an idea that they mechanically rebalance portfolios in the same direction as concurrent/simultaneous returns. This criticism is probably exaggerated because they ignore the effects of capital flows on token rebalancing demand.


“These E.T.F.’s are the “new weapons of mass destruction.

They’ve have turned the market into a casino on steroids,

They accentuate the moves in every direction — the upside and the downside”

“Leveraged E.T.F.’s have to rebalance themselves by buying and selling millions of shares within minutes to remain properly weighted. If the E.T.F. made money that day, to remain balanced it has to reinvest the proceeds and leverage them again. In many cases, leveraged E.T.F.’s use options, swaps and index futures to keep themselves in balance.”


Many others have claimed that leveraged ETFs could send volatility through the roof or prices through the floor.


A 3x leveraged token will have “decay” because when the price goes up, it has to increase the leverage to stay 3x leveraged.

I know this sounds confusing, but those of you who trade on Bitmex/Deribit/ByBit with cross leverage understand this. When you long with cross leverage, Bitmex shows, for example, 5x leverage. When the price goes up, your PNL goes up, and that 5x leverage is suddenly 4.5x leverage, for example.

When the price goes down, it has more significant “debt” than before, which means it has to sell some of its original position to pay off the debt and maintain a 3X leveraged ratio. This makes sense for people who have some experience with cross leverage trading instead of isolated leverage.

An example of a Leveraged ETF longterm

source: CBS

The best way to make money on leveraged tokens for short-term trades has the trend and momentum with you. Remember, it is rare to see V-shaped bottoms working out. Leveraged tokens are suitable for day trading, maybe having a position for a few days.

The temptation to speculate on these leveraged tokens can be strong, but make no mistake about it. They have no place in a diversified, long-term portfolio. Don’t buy them out of greed because you see a chart going straight up in one direction in the past couple of months. They won’t mirror your returns. The payoff may not be as rich as you envision. Holding leveraged tokens long-term is extraordinarily foolish, and you lose money.

However, there is a lot of money to be made by day trading leveraged tokens, but for sure, you need to be an experienced trader. You need momentum when buying these tokens.

In this article, I tried to write down all the benefits but also downsides about leveraged tokens and provide honesty. It would be a waste to see traders being
burned by leverage tokens because they don’t understand how they work. If they were also looking at the charts, they might experience FOMO, all while not understanding rebalancing and decay mechanics, which is disastrous.

Besides leveraged tokens, FTX is a great exchange that at least enables you to trade leveraged tokens. Remember, FTX is “built by traders for traders.” The average Joe will be burned for not understanding the mechanics.


If you’re reading this and you’re an experienced trader, you might have started to think about the token rebalancing, when it happens, what kind of effect it has on price and how you can profit from this. Or when the rebalancing happens, is somebody frontrunning your trade?

The Nikkei 225 index had a two-week losing streak at the start of 2016. Nikkei 225 Leveraged Index ETF was simultaneously raking in more than $1.4bn of new subscriptions. Individuals were doubling-down on their bets that the markets would rise. The inflow was so massive. Managers had to suspend new subscriptions for months.

While reading this paragraph and googling for more research, I found an article from Deribit.

According to their article

If ETHBULL or ETHBEAR’s rebalance became a large percent of daily volume on ETH itself during that period of time, then astute traders could calculate the amount of ETH that these tokens had to trade and pre-position accordingly before the rebalance and then later sell into the rebalance.

In the VIX markets, traders could anticipate the rebalance flow thusly:

They can bid up the price of the second-month futures constantly, and depress the price of the front month the closer it gets to expiration. This creates a kind of inexorable contango maelstrom, which is brutal for long-holders of the ETFs.

Such frontrunning became so rampant in the US commodity ETF market that several ETFs had to either drastically alter their rebalancing protocols or delist.

Every day at 00:02:00 UTC, the leveraged tokens rebalance to reach their desired leverage again.

Every leveraged token needs to rebalance at 00:02:00 UTC to keep its desired leverage. If the market perpetual goes up, buys need to be made. If the market goes down, tokens need to be sold on the perpetual.

If there is significant market movement since the previous rebalance, then the number of tokens that need to be bought or sold will be correspondingly more significant, resulting in momentum driving the market up or down harder. This strategy aims to front-run this rebalancing to take advantage of the anticipated momentum.

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Romano RNR

Derivatives trading, investing, cryptocurrency, stocks, forex, options & volatility - programmer & sysadmin