Money Market-Based
Some Toros leveraged tokens achieve their target leverage through money market protocols like Aave. This is one of two mechanisms Toros uses to build leveraged tokens.
How It Works
Deposit collateral (e.g. ETH or BTC) into Aave
Borrow a stablecoin against the collateral
Use the borrowed stablecoin to buy more of the collateral asset
Repeat until the target leverage ratio is reached
The result is a leveraged long position built entirely onchain through lending and borrowing.
For short positions, the process is reversed: deposit stablecoins, borrow the target asset, and sell it.
Rebalancing
The protocol automatically rebalances positions to maintain the target leverage ratio. When the price of the underlying asset moves significantly, the position is adjusted:
If the price rises, the effective leverage decreases. The protocol borrows more to restore the target ratio.
If the price falls, the effective leverage increases. The protocol repays some debt to reduce risk.
This rebalancing is what prevents liquidation in most market conditions.
Advantages
Fully transparent and verifiable onchain
No funding rate payments (unlike perpetuals-based tokens)
Positions are backed by real collateral in established lending markets
Costs
Borrow interest accrues continuously on the debt portion
Rebalancing incurs gas costs and potential slippage
Volatility decay affects performance in choppy markets
Which Tokens Use This Mechanism
Money market-based leveraged tokens are primarily used for major assets like Bitcoin and Ethereum, where Aave has deep liquidity. For the full token list, see Available Tokens.
Comparison
For an alternative mechanism using perpetual futures, see Perpetuals-Based.
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