Protected Leveraged Tokens
Protected Leveraged Tokens (PLTs) combine upside leverage with downside protection. They amplify gains during uptrends while capping losses through a protective floor during downturns.
How They Work
On the way up, PLTs behave like normal leveraged tokens. Profits compound as the position grows.
On the way down, once the protection floor is reached, losses flatten instead of continuing to spiral lower. The protection floor is established using options.
Components
PLTs use three integrated components:
Flat Money perpetual options to establish the protection floor
Aave lending and borrowing to hedge downside exposure
Shared pool architecture where all token holders participate in a unified leveraged position
When the price falls below the strike level, leverage reduces to zero and rebalancing stops. This eliminates further volatility decay during the drawdown.
Tradeoffs
Protection comes at a cost. PLTs charge higher fees (option premiums) compared to standard leveraged tokens. These premiums are predictable and function like insurance.
Protection reduces drawdowns but does not eliminate losses entirely. The protection floor depends on the strike price, which may be adjusted over time as options are rolled.
Who Are PLTs For
PLTs suit traders who want leveraged exposure but prioritize limiting downside risk. They are best for users who are willing to pay a premium for reduced drawdowns in trending or uncertain markets.
Available Protected Leveraged Tokens
All protected leveraged tokens are currently Bitcoin-only on Arbitrum.
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