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Traditional financial field: ETF evolution continues
In the traditional financial system, ETF plays a very important role. It has the characteristics of low cost, high efficiency, and transparent operation, and can meet the needs of market asset allocation and risk management. At the same time, ETFs often represent that related commodities or assets have been highly recognized by the market and are an indispensable investment tool in the capital market.
In 1993, the world's first ETF tracking the S&P 500 Index - Standard & Poor's Depositary Receipts (SPDR) was launched on the American stock exchange. As a long-term investment trust unit, the certificate pays dividends to investors quarterly. In 2004, the first ETF in China, the SSE 50 Trading Open-End Index Securities Investment Fund (Huaxia SSE 50ETF), was born. This index fund issued by China Asset Management not only fills the gap in the domestic market, but also occupies a relatively large market share among index funds by virtue of its advantages such as low fee rate and high efficiency. Since then, ETF products have become popular in China.
In April this year, the "ETF Industry Development Annual Report (2021)" released by the Shenzhen Stock Exchange showed that the scale of domestic ETF products will reach 1.4 trillion yuan in 2021, an increase of 30.55% over the previous year. New highs for the year. With the continuous inflow of funds from the global ETF market in 2021, the number of global ETF products and asset size will continue to grow, exceeding US$10 trillion. Among them, the US ETF market accounted for 70.2% of the total scale.
As an innovative form of ETF, some non-traditional ETFs that track derivative indexes and strategies, such as leveraged ETFs and inverse ETFs, have emerged as the times require. Among them, a leveraged ETF refers to an ETF that can use the leverage effect to amplify investment returns, and derive double or triple returns. Generally speaking, leveraged ETFs can generally refer to long and short ETFs, and some people refer to them specifically as long ETFs, while short ETFs are called inverse ETFs.
In February 2005, Sweden issued its first inverse ETF (XACT Bear), which tracked the OMXS30-index index and was listed on the Stockholm Stock Exchange. The ETF is designed to earn about 1.5 times the inverse of the index change on a daily basis. In June 2006, ProFunds successively launched 8 Proshares series inverse and leveraged ETFs on the American stock exchange, which aroused strong market repercussions.
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Encrypted financial world: ETF has unique charm
With the continuous maturity of the global encryption market, the emergence of Bitcoin ETF can not only allow investors to avoid the relatively complicated cryptocurrency transaction process and the possible risks in the transmission and storage of encrypted assets, but also, as a convenient way to access Bitcoin It can also further stimulate the transaction demand of the market.
As early as 2018, the world's first cryptocurrency ETF - Amun Crypto Basket Index ETF (trading code: HODL) was approved for listing on the Swiss Stock Exchange. The ETF tracks the Amun Crypto Basket Index (HODL5), the price performance of Bitcoin, Ethereum, Ripple, Bitcoin Cash and Litecoin.
In February 2021, a Bitcoin ETF named Purpose Bitcoin ETF (trading code: BTCC) debuted on the Toronto Stock Exchange in Canada, supporting purchases in Canadian and U.S. dollars. Eight months later, the New York Stock Exchange also ushered in the first Bitcoin ETF - ProShares Bitcoin Strategy ETF (trading code: BITO).
In April 2021, the world's first cryptocurrency leveraged ETF - Beta Pro Bitcoin ETF (trading symbol: BITI) was listed on the Toronto Stock Exchange. As an inverse ETF, its returns are negatively correlated with the price of Bitcoin.
For investors, leveraged ETFs bring the gospel of convenient investment. For example, BITI provides investors with a way to short Bitcoin without opening a margin account or shorting futures. For those investors who believe that the price of Bitcoin is inflated and in need of a correction, leveraged ETFs may be able to capture this part of the opportunity.
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Leveraged Tokens: Traditional Financial ETF Lands in Encrypted Finance
In the field of cryptocurrency, more and more exchanges have begun to introduce leveraged ETFs into their ecosystem of encrypted financial derivatives, usually in the form of leveraged tokens. This kind of trading tool that combines the attributes of leverage and futures contracts has almost the same functions and properties as leveraged ETFs. It also has the characteristics of low capital threshold, low professional requirements for operations, no need for margin, and no risk of liquidation.
Theoretically speaking, leveraged tokens have the attributes of general ERC-20 tokens, and have the functions of deposit and withdrawal, transaction, transfer and financial management. However, judging from the actual situation of leveraged tokens launched by major exchanges in the currency circle at this stage, their main applications are still concentrated in spot transactions.
From the naming point of view, the main information of leveraged tokens consists of three elements: underlying assets, leverage multiples, and long-short direction. For example, in the BTC3L/USDT trading pair, BTC means that the underlying asset is Bitcoin, 3 means that the leverage ratio is 3 times, and L means that the direction is long (positive). By analogy, if it is a 5 times short leverage token transaction of TRX, you should choose TRX5S/USDT, where S means short (reverse).
Leveraged tokens track a certain multiple of the daily rate of return of the target asset, that is, if the price of BTC rises by 1%, the net value of the corresponding long (positive) 5 times leveraged token will increase by 5%, while its short (reverse) To) the net value of 3x leveraged tokens will drop by 3%. Among them, the net value refers to the fair market price of the corresponding share of the underlying asset. In other words, the price of leveraged tokens is not calculated based on the price of the underlying asset, but the actual value of the underlying asset corresponding to the fund unit share.
According to the relevant person in charge of Summit AscendEX, leveraged tokens are similar to spot transactions, and the operation is relatively simple for users. It supports automatic compound interest and automatic position reduction. There is no need to pay a margin, and there will be no liquidation. At the same time, the platform has a "rebalancing mechanism", which will use daily fixed rebalancing and extreme market emergency balancing to control transaction risks to the greatest extent.
In fact, the leverage and inverse functions of leveraged tokens are realized by means of spot leverage or futures contracts, and its essence is to benchmark leveraged transactions and the shares of perpetual contracts. As long as the corresponding currency does not return to zero, the leveraged token will not be liquidated. The secret lies in the position adjustment mechanism implemented by the exchange, that is, position rebalancing.
According to the person in charge, the position adjustment in the rebalancing mechanism mainly refers to the dynamic adjustment made by the fund manager to the corresponding perpetual contract positions of the leveraged tokens, with the purpose of maintaining the fixed leverage ratio of the leveraged tokens. In the process of position adjustment, what changes is not the number of leveraged token positions, but the calculation base of the corresponding net value. To put it simply, it is mainly through the adjustment of the total net worth and the number of leveraged tokens to ensure the stability of the total amount of assets held by users.
"Based on the research on the pain points of the current leveraged token market, Summit AscendEX has carried out a number of optimizations in the balance mechanism. It not only upgrades the sensitivity of the algorithm, but also introduces an emergency balance mechanism suitable for a variety of extreme market conditions. .By maximizing the stability of the leverage ratio to reduce unnecessary losses of users." He said.
Of course, for users, in addition to considering the quality of the exchange’s leveraged token products, they also need to fully understand the principle, income mechanism, and trading scenarios of the leveraged token itself in advance. It is not difficult to find that the adjustment of leveraged tokens will inevitably wear out the net value of the position. Therefore, leveraged tokens are usually suitable for risk hedging in short-term and unilateral market conditions. At the same time, long-term holding trading strategies should be avoided as much as possible.
Reminder: The content is taken from public information and is for reference only and does not constitute investment advice. Please pay attention to investment risks.
