FTX Bulls and Bears
Binance, one of the largest cryptocurrency exchanges in the world, has announced that it will be delisting all FTX based leveraged tokensfrom its exchange, this coming Tuesday. The exchange has cited confusion amongst traders as being the reason behind the decision,
Due to lack of understanding of how leveraged tokens work by many of our users, Binance has decided to delist all existing FTX leveraged tokens and corresponding trading pairs, and will stop trading at 2020/03/31 10:00 AM (UTC).
All FTX listed tokens have a 3x leverage, meaning that they move 3 times as much in comparison to their underlying asset. The delisting tokens are Bull and Bear (for BTC), ETHBULL and ETHBEAR (for ETH), BNBBULL and BNBBEAR (Against BNB); XRPBULL and XRPBEAR (for XRP).
The first of the leveraged tokens, the BULL and BEAR were listed at the start of the year, with the latest, BNBBULL and BNBBEAR, listed recently on 11thof March. All of the 3x leveraged tokens were paired against USDT and BUSD, Binance’s own stable coin pegged to the US Dollar.
Citing the delisting plan, Binance gives owners of the leveraged tokens three options till 31stof March:
- Trading the tokens against USDT or BUSD.
- Withdrawing the assets to their wallets/other supported exchanges.
- Users can also keep holding and trading on Binance. At the time of delisting, their FTX assets will be liquidated to their equivalent BUSD value and deposited to their accounts in 14 days.
Leveraged FTX Trading
Announced a few days before Christmas last year, Binance had made an equity investment in the derivative exchange, FTX. FTX is a derivative dedicated exchange that allows traders to leverage movements of cryptocurrencies and make profits. It creates specialized Ethereum ERC20 based tokens that are essentially wrapped tokens linked to the underlying ones. This way, traders do not need to worry about lending, margins, interest payments etc. The exchange does that at the back end. A trader can multiply his or her profits by trading in these tokens. All of the tokens listed on Binance are 3x leveraged, meaning that the token will move three times as much as compared to the underlying one.
For example, for 1% increase in value of BTC, BULL will jump 3%. Similarly, a downward move of 1% of BTC will result in a 3% decline in BULL’s value. Bear based tokens also work on the same principle, but with negative correlation. This means that if the underlying token falls in value, the bear ones rise, giving another opportunity for traders to actually increase their profits in case of a reversing market.
Leveraged tokens, although giving traders a greater opportunity to make profits, are more volatile in nature (as much as the multiplication factor itself) and can lead to loss of all asset value. A 33 percent drop in value of the underlying asset means a 99% loss of value for the leveraged token holder and all the underlying asset being liquidated, leaving nothing behind.