Toros leveraged tokens allow users to obtain on-chain leveraged exposure for multiple assets. The strategy automatically manages and monitors leveraged loans, and abstracts away the active management. The algorithm used to maintain a safe and consistent Target Leverage Ratio (TLR) works to mitigate the risks of maintaining a healthy collateralized debt position.
Leveraged tokens utilize dHEDGE, AAVE, and 1inch contracts under the hood. This allows for an auto-balancing system to manage and maintain the capital to stay within range of the initial parameters.
Directional Upside Power
Toros leverage tokens are best used for short term directional upside. Single direction movements can exceed returns compared to typical perp leverage products. This is because Toros increases leverage as its price increases, to maintain the leverage range. Toros uses AAVE to manage debt leverage positions.
All Toros leverage tokens have built-in protection against downside liquidation. For example, if you had held a typical -2X ETH Short perp from March to May 2021, you would have been liquidated several times over as ETH went up in price. Holding the Toros Ethereum Bear -2X however, would have protected you from liquidation. This is because Toros rebalances on price movements to maintain the leverage range. When a Toros token decreases in value, its leverage also decreases.
Volatility Decay Risk
In sideways (up-down) markets, Toros pools can underperform typical leverage products. This is known as Volatility Decay. Toros pools work similarly to Leveraged ETFs. They maintain a leverage range by rebalancing AAVE debt. Volatility decay occurs through rebalancing, rebalance fee, and debt interest. Toros pools are therefore intended for short term directional bets for best results.
When withdrawing, the Toros token price displayed is the last 'best' value based on the Chainlink prices of the underlying assets. Sometimes the inter block Chainlink price diverges from on chain market price of those assets. In this case, when unwinding the leveraged Toros position, the slippage can be higher than expected (amplified by the leverage). We recommend 2-3%, but usually it will be < 1%.