5x Leverage Token Using Perp
Getting leveraged exposures through DEX Perpetual Futures contracts.
The 5x leverage token gets its inverse exposure through DEX perpetual futures contracts that settle on Ethereum layer-2. Compared with Index Coop’s FLI series, which get exposures by holding the underlying tokens and rebalance on the layer-1 spot market, the Zoo’s Layer-2 perpetual contract method saves significant amounts of gas fee in rebalancing. This enables not only much more frequent rebalancing for an ultra-accurate index tracking, but also cost reduction to the users.
Essentially, the leverage token runs a margin trading account on derivative DEX. Take the Bear for example, when users mint a Bear token to their wallet, the Zoo uses the funds to open a perpetual futures position that gets the mandated leveraged exposures. The margin account’s Net Asset Value (NAV) is the Bear’s NAV, and users can monitor it live in the Bear Den, together with live leverage exposure, margin ratio, safety margin to liquidation, and etc. When users redeem the Bear token to the original token, the Bear sells the portion owed and sends the funds back to your wallet according to the token’s current value. Mint and redemption happen in IndexZoo by directly interacting with the Habitat Protocol. In fact, they are the functions that keep Bear’s price in check with NAV on secondary markets such as Uniswap and Sushiswap.
The Bear’s value is settled in USDC, but you may choose USDC, DAI, or ETH for mint and redemption. As users mint and redeem, the Bear’s target exposure fluctuates, and its main task is to manage the short positions to meet the target, therefore always providing accurate tracking.