# 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

1. Deposit collateral (e.g. ETH or BTC) into Aave
2. Borrow a stablecoin against the collateral
3. Use the borrowed stablecoin to buy more of the collateral asset
4. 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](https://docs.toros.finance/leveraged-tokens/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](https://docs.toros.finance/leveraged-tokens/available-tokens).

## Comparison

For an alternative mechanism using perpetual futures, see [Perpetuals-Based](https://docs.toros.finance/leveraged-tokens/perpetuals-based).