Continuous rebalancing without hard stops for most accurate leveraged tracking.
The biggest problem with leverage tokens today is that no one understands them. Contrary to other leverage tokens that use a variable target leverage range, the Bear uses fixed leverage mandated by the token. This is achieved through actively and continuously rebalancing throughout the day, as opposed to daily rebalancing at a fixed time, which kills the token’s return in zigzag markets. The whole point of using a leverage token is to get the leverage promised throughout the duration of holding the token. We understand the pain of not getting the leveraged upside when markets go up, but getting the promised leveraged downside when markets go down.
The only time that the Bear deviates from target leverage is when markets move significantly against us, triggering a liquidation protection de-leveraging. However, when the market goes for us, the Bear would re-leverage back to the target ratio.
The Bear also does not seek to reinvest winning and over leverage its exposures, as doing so infers the arbitrary view that trends would continue, and would deviate from the Inverse Token’s objective of accurately tracking the index.
Since the Bear is trading layer-2 derivatives, timing is everything. Everything the Bear does is under IndexZoo’s Habitat Protocol, which connects to DEXes via low-latency API, monitors intra-second bid/ask order book feeds (DyDx uses an order book), and always gets the best price when needed. This is of particular value when the market is highly volatile because Habitat Protocol will be able to de-leverage before price gaps away from current level.
The Bear Accurately Tracks the Leveraged Return of the Indexed Price
A full step by step breakdown of the Bear's margin account state will be linked here too.