AAVE-based Leverage Tokens

Toros also offers leverage tokens built on the AAVE protocol. These tokens function by borrowing funds from AAVE to amplify exposure to an underlying asset.

Key Features:

• Debt-based Leverage: The tokens borrow assets from AAVE to achieve leverage, which is automatically managed and adjusted using integrated smart contracts.

• Rebalancing Mechanism: The AAVE-based tokens regularly rebalance to ensure they maintain a safe leverage range, which prevents liquidation and maintains the Target Leverage Ratio (TLR).

• Volatility Decay: In markets with a lot of sideways movement, these tokens can experience volatility decay due to the nature of their rebalancing mechanism, interest fees, and the costs associated with maintaining leverage.

Example: ETH 3x Bull Token

• If ETH increases in price, the leverage token amplifies the exposure by borrowing more to maintain a 3x leverage position.

• The strategy automatically sells ETH if the price moves against the position to prevent liquidation and maintain the TLR.

Benefits:

• Downside Liquidation Protection: These tokens prevent the risk of liquidation even in volatile markets by rebalancing their debt position.

• Leverage Adjustments: Leverage is adjusted when price movements exceed predefined thresholds (e.g., 2.8x to 3.2x for a 3x token), minimizing excessive rebalancing and keeping the volatility decay to a minimum.