Leveraged Token Updates

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Disclaimers

  1. None of this is investment advice.
  2. Much of the below analysis ignores any difference between futures and spot prices, and ignores the effects of fees.
  3. While your account's holding of a leveraged token cannot be liquidated, the leveraged token itself theoretically could be.  Leveraged tokens greatly reduce the risk of liquidation but cannot make it fully impossible; if markets instantaneously gap down 50%, there is nothing that can stop the +3x leveraged position held by the leveraged token from getting liquidated. In addition, while leveraged tokens attempt to avoid getting liquidated, this does not prevent them from being able to suffer heavy losses.
  4. Leveraged tokens can have unintuitive edge cases. The below is a summary of their common behavior.
  5. Users should trade Leveraged Tokens at their own risk.
  6. Leveraged tokens, like the rest of FTX, are not being offered to US users.

 

Note: Below mentioned MOON/DOOM spot markets were already removed. Please see Update February 2020 for details. 

 

Leveraged Token Updates 

 

We’re really sorry about all of the confusion caused by DOOM tokens yesterday (2019-09-24).  We strive to make products which are intuitive and powerful, and yesterday it became clear that during large move days, the volatility of MOON and DOOM tokens can cause a lot of confusion.  

 

In response to yesterday’s volatility, we’ve received a lot of feedback about leveraged tokens.  The most consistent is that the intraday rebalance cause counter-intuitive results: if an underlying product goes down and then back up in the same day, the DOOM leveraged tokens may have reinvested their profits at the bottom and end up losing to that.

 

Thus, starting tomorrow, leveraged tokens will only perform intraday rebalances if they need to decrease their leverage, not to increase it.  Thus if markets are down 3% MOON will rebalance in order to avoid liquidation, but DOOM will not rebalance intraday and reinvest profits; instead DOOM will keep its position until the end of the day.  All leveraged tokens will still rebalance at 00:02:00 UTC every day to return to their target leverage, independent of the direction of the move.

 

This means that as long as markets never go back above a day’s starting point, DOOM tokens generally will not be down on the day.  A day here starts at 00:02:00.

 

A summary of the changes we’re making to leveraged tokens:

 

  • Leveraged tokens will only rebalance intraday in order to reduce leverage, not increase it.  All leveraged tokens will still rebalance at the end of each day to return to their target leverage.
    • This means that if markets are down on a day then HEDGE, BEAR, and DOOM tokens will not rebalance on intrade price movements; and vice versa for BULL and MOON.
    • This should help combat what happened yesterday, where large back and forth movement during a day causes leveraged token price declines.
    • Finally, instead of having 10% and 3% thresholds, we're cleaning up the conditions for an intraday rebalance: it will happen if any token's leverage is more than 33% higher than its target.  So, for instance, if a DOOM token becomes -13.33x leveraged it will rebalance; and if a BULL token becomes 4x leveraged it will rebalance.
  • We will now change minimum price increments (‘tick sizes’) more quickly as prices change, in order to avoid having a token whose price moves a lot have a tick size which is too large compared to its value.
    • We have re-priced each trade that occurred yesterday at one minimum price increment in MOON and DOOM tokens to whichever is better: the trade price, or the NAV of the token at the time.
  • We’re also going to drop $50 free to every account that held or traded MOON or DOOM tokens yesterday (2019-09-24 UTC).

 

We're going to roll out these changes at midnight tonight UTC (2019-09-25).

We’ve updated the help articles on leveraged tokens to reflect the above changes.

 

 

 

________________________________________

FTX Crypto Derivatives Exchange: https://ftx.com

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