Protected Leveraged Tokens
Leveraged tokens with an added protection floor to limit downside during sharp drops.
Last updated
Leveraged tokens with an added protection floor to limit downside during sharp drops.
Last updated
Leverage multiplies your gains when the market goes up, but it also multiplies your losses when the market goes down.
Protected leveraged tokens soften that downside.
On the way up → they behave like normal leveraged tokens, compounding profits.
On the way down → once the protection floor is reached, losses flatten instead of spiralling lower.
You stay in the position — no forced exits, no liquidations.
This makes PLTs most useful when you want upside leverage, but also want a cap on how much you can lose in a sharp drop.
Normal leveraged tokens work well in strong uptrends, but in downtrends they can keep falling quickly. As prices drop, rebalancing compounds the losses.
Protected leveraged tokens add a safety floor:
Upside works like a bull leveraged token.
On the downside, once the protection level is hit, the token flattens out instead of compounding losses.
This makes them especially useful for traders and holders who want leverage with more peace of mind in case of sudden drawdowns.
Amplified upside – just like standard leveraged tokens.
Protection floor – limits drawdowns during sharp drops.
Reduced volatility decay – option costs replace rebalancing decay once protection is active.
No forced liquidations – risk managed by rebalancing + option layer.
Protected leveraged tokens combine Flat Money perpetual options with Aave lending and borrowing.
Flat Money options → provide the downside protection floor, acting like a near-the-money call backed by the underlying.
Aave lending/borrowing → hedges downside by lending stablecoins and borrowing BTC (or the relevant asset), reducing exposure as markets fall.
Shared pool → all deposits are combined into a single leveraged option position, so all holders share the same strike price and protection mechanics.
If price falls below the strike (protection line):
Leverage is reduced to 0x.
No further rebalancing occurs → no volatility decay is locked in.
The strike price is gradually adjusted:
Moves up slowly as the asset rises, so protection is closer if the market turns.
Moves down slowly when the asset falls, so upside exposure resumes earlier on recovery.
Each strike adjustment requires closing and reopening part of the position, which incurs an option premium cost.
Target Leverage Ratio (TLR): Keeps leverage within safe bounds (e.g. 1.8x–2.2x for a 2x PLT).
Strike adjustment velocity: Balances fee costs against responsiveness.
Option roll costs: Replace volatility decay with predictable, insurance-like fees.
Withdrawal liquidity: A small % of underlying (e.g. WBTC) is kept aside to ensure smooth user exits — not a core part of the protection mechanics.
Higher costs: Option premiums mean PLTs underperform normal LTs in strong, up-only trends.
Liquidity: Currently limited; adoption depends on deeper options markets.
Not risk-free: Protection reduces drawdowns but doesn’t eliminate losses.
Protected leveraged tokens are for users who want leverage with a safety net.
They compound gains in uptrends.
They flatten losses once the floor is reached in downtrends.
They trade slightly higher costs for more resilience and less stress in volatile conditions.