Leveraged Tokens Overview

https://toros.finance/category/leverage

Ethereum: https://toros.finance/?category=Leverage&asset=ETH Bitcoin: https://toros.finance/?category=Leverage&asset=BTC Matic: https://toros.finance/?category=Leverage&asset=MATIC

Toros leveraged tokens are a way for users to gain amplified price exposure to assets on the blockchain. Imagine them as tools that amplify your investment power in the market. The Toros Leveraged vaults automatically take care of managing leverage (borrowed money to enhance investment power) without requiring active involvement from the investor.

Toros leveraged tokens utilise the liquidity of Aave protocol and 1inch to scale.

Technical Details

These tokens use a combination of complex smart contracts from dHEDGE, AAVE, and 1inch. In simple terms, they have an in-built automated system that adjusts the positions to keep the vaults within a predefined safe range of leverage. This system is designed to maintain what's called a Target Leverage Ratio (TLR), which helps manage the risks associated with leverage backed by collateral.

Directional Upside Power

Toros leverage tokens are best used for short to medium term directional upside. Single direction movements can exceed returns compared to typical perp leverage products. This is because Toros increases leverage as the underlying asset's price moves favorably to maintain the leverage range, giving returns that may resemble power perpetuals.

Toros Leverage tokens can far outperform the initial leverage in trending markets

Liquidation Protection

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 adjusts down to maintain the TLR.

Volatility Decay Risk

In sideways (up-down) markets, Toros vaults can underperform typical leverage positions. This is known as Volatility Decay. Toros vaults work similarly to Leveraged ETFs. They maintain a leverage range by rebalancing Aave debt. When the underlying asset price moves in favor of the strategy (eg. ETH price going up in a Ethereum Bull token), then the strategy buys the underlying asset to maintain the same leverage exposure. Likewise if the market underlying price moves against the token (eg. price going down against a Bull token), then the strategy sells the underlying asset to maintain leverage and avoid liquidation. The strategy therefore buys the underlying asset when its price moves in favor of the strategy, and sells it if the price moves against the strategy, making sideways markets or positive trend reversals not the optimal times to hold the token.

Volatility decay occurs through the leverage rebalancing, rebalance fees, and Aave debt interest costs. Toros vaults are therefore intended for short to medium term directional bets for best results.

To minimize volatility decay, the strategy only rebalances once leverage threshold targets are exceeded (eg. in a 3x Bull, the thresholds are set between 2.8x and 3.2x). This means that the strategy does not need to rebalance excessively and as a result minimises the volatility downside of the strategy, whilst maintaining the upside exposure.

Note that higher higher leverage is also prone to higher volatility decay and could underperform ETH even in a positively trending market. This is why Toros leverage tokens don't offer leverage above 3x.

An 8x long leverage token can underperform ETH even in a trending market

Slippage

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%.