With Bybit, some of the differences between Leveraged Tokens and derivatives trading are as follows:

 

	Leveraged Token(s)	Derivatives Trading Products
Margin Requirement	No	Yes
Leverage Range	Targeted Range	No Fixed Range
Liquidation	No	Yes
Trading Methods	Buy and Sell Purchase and redemption	Long and Short
Investment Scenario	One-Sided Market	Volatile Market

 

Let's take a look at the comparison of Leveraged Tokens and derivatives trading returns in the following two scenarios.

 

 

 

1) Comparison of Returns in One-Sided Market:

 

Long Position

 

	Price of BTCUSDT  Perpetual Contract	ROI of BTCUSDT Perpetual Contract with 3x Leverage over the 4-Day Period	Changes in Net Asset Value of BTC3L	ROI of BTC3L  over the 4-Day Period
Day 1	$40,000	111.51%	0%	117.28%
Day 2	$44,444		33.33%
Day 3	$49,381		70.36%
Day 4	$54,868		117.28%

 

As shown in the table above, the price of the BTCUSDT Perpetual Contract increased from $40,000 to $54,868, which is a 37.17% increase over a period of four days.

 

Under the same Perpetual Contract market fluctuations:

• If Trader A opened a long position of a BTCUSDT Perpetual Contract with 3x leverage, the ROI is 111.51%.
• If Trader A has opened a long position of the Leveraged Token BTC3L instead, the ROI is 117.28% over the four-day period, which is a higher return than that of holding a 3x leverage BTCUSDT Perpetual Contract. 

 

 

Short Position

 

	Price of BTCUSDT Perpetual Contract	ROI of BTCUSDT Perpetual Contract with 3x Leverage over the 4-day Period	Changes in Net Asset Value of BTC3S	ROI of BTC3S over the 4-day Period
Day 1	$40,000	−111.51%	−0%	−70.37%
Day 2	$44,444		−33.33%
Day 3	$49,381		−55.55%
Day 4	$54,868		−70.37%

 

As shown in the table above, the price of the BTCUSDT Perpetual Contract increased from $40,000 to $54,868, which is a −37.17% return over a period of four days.

 

Under the same Perpetual Contract market fluctuations:

• If Trader B held a short position of a BTCUSDT Perpetual Contract with 3x leverage, the ROI is −111.51%, and the position would have been liquidated. 
• If Trader B had held a short position of the Leveraged Token BTC3S instead, the ROI would be capped at −70.37%, without liquidation or margin loss. 

 

As you can see from the above example, for Leveraged Tokens, when the market moves in the same direction as your position, you can potentially maximize your profit with leverage. And if the market moves against your position, Leveraged Tokens can help you minimize your losses.

 

However, Leveraged Tokens are suitable only for short-term investments, due to their nature under volatile markets (see example below). Please invest in Leveraged Tokens only after you feel you understand the product completely. 

 

2) Comparison of Returns Under Volatile Market:

 

Long Position

 

	Price of BTCUSDT Perpetual Contract	ROI of BTCUSDT Perpetual Contract with 3x Leverage over the 5-day Period	Changes in Net Asset Value of BTC3L	ROI of BTC3L over the 5-day Period
Day 1	$40,000	0%	0%	−8.33%
Day 2	$44,444		33.33%
Day 3	$40,000		0%
Day 4	$35,556		−33.33%
Day 5	$40,000		−8.33%

 

In the table above, the price of BTCUSDT Perpetual Contracts fluctuates greatly on a daily basis, with a net increase of 0% at the end of the five-day period.

 

Under the same Perpetual Contract market fluctuations:

• If Trader A holds a long position of BTCUSDT Perpetual Contracts with 3x leverage, the ROI is 0%. 
• If Trader A had opened a long position of the Leveraged Token BTC3L instead, the ROI would have been −8.33%, which is a lower return than that of holding a 3x leverage BTCUSDT Perpetual Contract. 

 

 

Short Position

 

	Price of BTCUSDT Perpetual Contract	ROI of BTCUSDT Perpetual Contract with 3x Leverage over the 5-day Period	Changes in Net Asset Value of BTC3S	ROI of BTC3S over the 5-day Period
Day 1	$40,000	0%	0%	−13.33%
Day 2	$44,444		−33.33%
Day 3	$40,000		−13.33%
Day 4	$35,556		6.67%
Day 5	$40,000		−13.33%

 

In the example above, the price of BTCUSDT Perpetual Contracts fluctuates greatly daily, with a net increase of 0% at the end of the five-day period.
 

Under the same Perpetual Contract market fluctuations:

• If Trader B holds a short position of a BTCUSDT Perpetual Contract with 3x leverage, the ROI is 0%. 
• If Trader B had opened a long position of the Leveraged Token BTC3S instead, the ROI would have been 13.33%, which is lower than that of holding a 3x leverage BTCUSDT Perpetual Contract. 

 

You can see from the above examples that, compared with other derivatives products, a Leveraged Token performs better in a one-sided market, but worse during times of extreme market volatility. 

 

All Leveraged Tokens carry built-in decay. In a volatile market, built-in decay may negatively impact your total returns. To minimize net losses through built-in decay, Bybit’s Leveraged Token offers traders transparent rebalancing mechanisms. Rebalancing will only take place when the actual leverage falls beyond a targeted range of leverage.

 

To learn more about the rebalancing mechanism, please refer to the Bybit Leveraged Token Rebalancing Mechanism.