Is Binance Leveraged Tokens the trend? Claimed to have low risk, low fees, and suitable for long-term holding

Recently reported, Binance is rumored to be launching its own version of leveraged tokens, and today, according to Cointelegraph, Binance has responded, claiming the news to be true and that these tokens may be listed as early as this Thursday.

• Claimed to have lower fees and risks, suitable for long-term holding
• Expected to list leveraged token "BTCUP" on Thursday

According to Cointelegraph's inquiry, Binance responded that leveraged tokens allow users to trade underlying assets with leverage without the need for collateral to maintain margin requirements, thus avoiding liquidation risks, providing customers with a more volatile trading instrument. Binance stated:

Each leveraged token corresponds to a basket of perpetual futures positions. The token's price tracks the notional value of its underlying positions and the changes in its leverage level (1.5 – 3 times).

FTX Leverage Tokens Removed from Exchange Sparking Controversy

Approximately in mid-March, users reported to Binance that there were issues with the "price discovery mechanism" of their leverage tokens (FTX version), resulting in a "three times larger drop than spot prices" and a disconnection from spot price fluctuations. After conducting research, it was speculated that this was due to network delays combined with insufficient inventory, causing low liquidity which led to the disconnection of prices from the market.

As a result, Binance announced the removal of FTX leverage tokens at the end of March, with CEO CZ claiming that "most users do not understand this product." This move displeased the founder of FTX, who stated that Binance was unwilling to help users understand leverage tokens.

Since leverage tokens are only suitable for short-term operations, holding them long-term or trading during consolidation periods may result in losses. Although Binance has not disclosed the design mechanism of their own version, it appears that they intend to improve it for longer holding periods. Binance explained:

In the past, users often held FTX version leverage tokens for the long term, rather than trading within the designed short-term. Therefore, we are addressing the key issues of existing leverage tokens in the industry and preparing to launch Binance leverage tokens to meet market demand.

Lower Fees, Lower Risks?

According to reports, Binance claims that compared to competing products, their leverage token series has lower transaction fees and provides higher levels of protection. It is reported that the leverage multiples of the tokens will be between 1.5 to 3 times, and unnecessary forced liquidation mechanisms will not be included. Binance pointed out:

This is more advantageous compared to other products that frequently rebalance their leverage ratios. We will maintain the liquidity of the leverage token series products and ensure that the leverage tokens can always be bought or sold within 10% of the Net Asset Value (NAV).

Binance stated that although leverage tokens are primarily for short-term trading, they cannot replace futures or spot trading. However, if users choose to hold them long-term, their token mechanism is still better than that of competitors. It is reported that Binance plans to provide educational information for users, with Binance mentioning:

We have addressed the key issues of other existing leverage tokens in the market and have developed an improved product that can provide users with safer protection measures. We believe that users will immediately see the differences and improvements after trading.

It is expected that Binance will initially release leverage tokens related to Bitcoin on Thursday. Binance's response to foreign media once again confirms the previous disclosure by The Block's Research Director Larry Cermak, indicating that the token name will be changed to "BTCUP" from the FTX version's "BTCBULL."