Gate Exchange ETF Token Details: Mechanism, Advantages, and Risk Management

In the rapidly changing cryptocurrency market, capturing short-term trends is a goal for many traders, but high margin requirements and potential liquidation risks can be daunting. Gate’s launched ETF leveraged tokens are designed to address this pain point. They package complex leverage contracts into simple spot trading, allowing you to achieve up to 5x exposure to price movements by buying and selling tokens, while avoiding the hassle of managing margin positions and the risk of forced liquidation.

But how does this “magnifying glass” work? Does it really have no liquidation risk? Why is it not suitable for long-term holding? This article will deeply analyze the core mechanism of Gate ETF leveraged tokens to help you fully understand this efficient tool.

1. Core Concept: What are Gate ETF Leveraged Tokens?

Simply put, Gate ETF leveraged tokens are a type of fund product that tracks the price movements of specific underlying assets (such as BTC, ETH). The biggest difference from traditional tokens is their built-in leverage feature. You trade tokens representing the fund’s shares, whose net value amplifies the underlying asset’s gains or losses by a target multiple (e.g., 3x or 5x).

For example:

• BTC3L: Represents a 3x long leveraged token for Bitcoin. When BTC price rises 1%, BTC3L’s net value aims to increase about 3%.
• ETH3S: Represents a 3x short leveraged token for Ethereum. When ETH price drops 1%, ETH3S’s net value aims to increase about 3%.

The key differences compared to traditional leverage or contract trading are shown in the table below:

2. Core Mechanism Analysis: Rebalancing and Fees

The core of “liquidation-free leverage” for ETF tokens lies in their unique rebalancing (also called reweighting) mechanism and transparent fee structure.

1. Intelligent Rebalancing: How to maintain target leverage?

Due to market volatility, the actual leverage behind the token can deviate from the target multiple. Gate’s rebalancing mechanism aims to bring it back to the set target, divided into daily scheduled rebalancing and unscheduled rebalancing.

• Scheduled Rebalancing: Conducted daily at UTC+8 00:00. For example, for a 3x long token, if the leverage is between 2.25 and 4.125 times and the underlying’s daily volatility is less than 1%, rebalancing may not occur; if it exceeds this range, the system automatically adjusts the position to bring leverage back to 3x.
• Unscheduled Rebalancing: Monitored in real-time during trading days. When real-time leverage exceeds preset bounds (e.g., 3x long surpassing 2.25-4.125 times), rebalancing is triggered immediately.

2. Fee Structure: What does the management fee include?

Holding ETF leveraged tokens incurs a daily 0.1% management fee. This fee covers all costs associated with hedging in perpetual futures markets, including transaction fees, funding rates, etc.. The fee is deducted from the fund’s assets and is not directly visible in user trading operations.

3. Core Advantages and Potential Drawbacks

Core Advantages:

• No liquidation risk: This is its most prominent benefit. Even if the underlying asset experiences sharp volatility, the platform will automatically reduce positions through rebalancing to prevent zeroing out, so your token holdings won’t decrease as a result.
• Ease of operation: No need to study margin, funding rates; trading is as simple as spot trading to gain leverage.
• Automatic compounding/reduction: In a bullish trend, profits are automatically used to increase positions, achieving a compounding effect; during declines, positions are gradually reduced to stop losses.

“Wear and Tear” and Risks:

• Not suitable for long-term holding: In sideways or choppy markets, frequent rebalancing causes volatility erosion, leading to net value loss. Therefore, it is designed as a short-term trend trading or hedging tool, not for long-term investment.
• High-risk product: Leverage amplifies gains but also proportionally magnifies losses. Small adverse movements in the underlying can cause significant drawdowns in net value.

4. Practical Example: Understanding Trading Outcomes

Suppose you buy BTC3L (Bitcoin 3x long) at a net value of $1.00.

• Scenario A (Bullish trend):
  • BTC price rises 10%.
  • Theoretical net value: $1.00 × (1 + 10% × 3) = $1.30.
  • If rebalancing is triggered, the system will use part of the profit to add to the position, further amplifying future gains.
• Scenario B (Volatile sideways market):
  • Day 1: BTC rises 10%, BTC3L net value increases to about $1.30.
  • Day 2: BTC falls back to the starting point (about 9.09% decline), the net value of BTC3L does not simply revert to $1.00.
  • Due to the rebalancing mechanism, during the decline, the system will reduce positions, and the final net value may be below $1.00, reflecting the “volatility erosion.”

5. Summary: Who is it suitable for, and how to use it correctly?

Gate ETF leveraged tokens are sophisticated tools aimed at traders who can tolerate high risk and want to amplify short-term market directional movements.

Proper Usage Tips:

1. Clarify your purpose: Use for short-term (hours to days) trend trading or hedging, avoid long-term holding.
2. Understand the mechanism: Before trading, fully understand how rebalancing may cause erosion and fees.
3. Implement strict risk control: Although there’s no liquidation, the principal can still shrink significantly due to high leverage. Set stop-loss orders and control position sizes.
4. Monitor net value: Pay attention to the token’s real-time net value during trading. Market prices may fluctuate around net value; avoid buying when premiums are high.