1. What is an ETF?
ETF products track a certain multiple of the target asset's rise and fall on a daily basis. Users do not need to pay the collateral asset to achieve the effect of leveraged trading on the target asset, never liquidate positions, and achieve leveraged trading without the risk of forced liquidation. The trading mode is simple, the same as the spot trading method, and the income can be doubled by directly trading ETF tokens. You can know the multiples of the product and the direction of long and short through the name of the ETF.
During the same rebalancing cycle:
BTC3L refers to 3 times long BTC. When the BTC price increases by 1%, the net value of the product increases by 3%, and the profit is 3 times that of the spot;
BTC3S refers to shorting BTC three times. When the price of BTC falls by 1%, the net value of the product increases by 3%, and the spot price can also be doubled.
2. Net value and price of ETF products
1. Net value
The essence of an ETF product is a combination of a basket of currencies. The total value of the basket of currencies is the net asset. The value of dividing it into multiple shares is the net value of a single ETF token. The net value is also the fair transaction price of each ETF token in the secondary market. .
Net Assets = Basket Position * Underlying Asset Price + Basket Loan
Basket Position: The amount of underlying assets held by the ETF
Basket Loan: the number of borrowed coins held by ETFs
For example: the BTC3L basket position is 3 BTC, the underlying asset (BTC) price is 10,000 USDT, and the basket loan is -20,000 USDT, then the BTC3L net asset = 3*10000-20000=10000 USDT. If the currency combination is divided into 10,000 shares as a single BTC3L token, the net value of each BTC3L token is 1 USDT.
2. Price
The price is the market price of the ETF token, and the price does not necessarily equal the net value. Due to fluctuations in market sentiment, there may be a situation in which the transaction price in the secondary market deviates from the fair price (net value) during a certain period of time.
3. Relationship between net value and price
From the above definition, it can be seen that net value and price are not necessarily equal. When the price is close to the net value, the risk of buying the ETF is less; when the price and the net value deviate greatly, it proves that the market sentiment of the ETF is high, and it is necessary to be alert to the price impact caused by emotional fluctuations.
3. The underlying logic of ETF
ETF products are essentially a basket of currencies. Through the portfolio management of the underlying assets, the purpose of constant leverage, amplifying gains and reducing losses is achieved.
BTC3L refers to an ETF product that triples long BTC. In order to achieve triple growth, BTC3L products need to borrow money to purchase 2 BTC assets on the basis of a single underlying BTC asset, and these 3 BTC assets constitute a basket position.
Assuming that the number of underlying assets held by BTC3L is 3 BTC, when the BTC price is 10,000 USDT, BTC3L represents 3 BTC and -20,000 USDT (loan assets), and the net asset of BTC3L is 3*10000-20000=10000 USDT; When the price of BTC rises to 11000 USDT, the net asset of BTC3L is 3*11000-20000=13000 USDT. At this time, when BTC rises by 10%, BTC3L achieves a rise of 30%.
BTC3S refers to an ETF product that shorts BTC three times. In order to amplify the three-fold increase when BTC falls, BTC3S products need to borrow money to sell 3 BTC assets on the basis of the amount of USDT corresponding to a single underlying BTC asset.
Assuming that BTC3S holds 4 copies of BTC corresponding to the amount of USDT, when the BTC price is 10,000 USDT, BTC3S represents -3 BTC (loan assets) and 40,000 USDT. At this time, the net assets of BTC3S are 40,000-3*10,000=10,000 USDT; When the price of BTC drops to 9000 USDT, the net asset of BTC3S is 40000-3*9000=13000 USDT. At this time, when BTC drops by 10%, BTC3S can still achieve a rise of 30%.
4.ETF applicable market
Applicable market:
Unilateral market, up more, down less
Taking ETH as an example, assuming that ETH increases by 5% every day, the cumulative increase will be 15.76% after 3 days, the cumulative increase of ETH3L net value will be 52.09%, and the cumulative decrease of ETH3S net value will be -38.59%. For details, please refer to the table below:
|
The rise and fall of ETH |
The rise and fall of ETH3L net value |
The rise and fall of ETH3S |
ETF rebalancing operation |
|
|
Day 1 |
5% |
15% |
-15% |
ETH3L: If you make profit, increase your position and maintain 3 times leverage ETH3S: Reduce positions if you lose, maintain 3 times leverage |
|
Day 2 |
5% |
15% |
-15% |
ETH3L: If you make profit, increase your position and maintain 3 times leverage ETH3S: Reduce positions if you lose, maintain 3 times leverage |
|
Day 3 |
5% |
15% |
-15% |
ETH3L: If you make profit, increase your position and maintain 3 times leverage ETH3S: Reduce positions if you lose, maintain 3 times leverage |
|
Cumulative rise and fall |
15.76% |
52.09% |
-38.59% |
|
Therefore, in a unilateral market, whether it is a unilateral rise or a unilateral fall, ETF products perform position adjustment operations to maintain the agreed leverage ratio, which can expand positive profits and reduce negative losses.
Shock market, net worth wear
In a volatile market, if ETH has a rise and fall of 5%, -5%, 5%, and -5% within 4 days, the cumulative rise and fall is -0.5%, and the cumulative rise and fall of ETH3L net value is -4.45% , higher than -0.5%*3=-1.5%. Therefore, in a volatile market, ETF products may experience net worth wear and tear.
|
The rise and fall of ETH |
The rise and fall of ETH3L net value |
The rise and fall of ETH3S |
ETF rebalancing operation |
|
|
Day 1 |
5% |
15% |
-15% |
ETH3L: If you make profit, increase your position and maintain 3 times leverage ETH3S: Reduce positions if you lose, maintain 3 times leverage |
|
Day 2 |
-5% |
-15% |
15% |
ETH3L: Reduce positions if you lose, maintain 3 times leverage ETH3S: If you make profit, increase your position and maintain 3 times leverage |
|
Day 3 |
5% |
15% |
-15% |
ETH3L: If you make profit, increase your position and maintain 3 times leverage ETH3S: Reduce positions if you lose, maintain 3 times leverage |
|
Day 4 |
-5% |
-15% |
15% |
ETH3L: Reduce positions if you lose, maintain 3 times leverage ETH3S: If you make profit, increase your position and maintain 3 times leverage |
|
Cumulative rise and fall |
-0.50% |
-4.45% |
-4.45% |
|
Therefore, in a volatile market, frequent position adjustments to maintain a constant leverage of the ETF may cause wear and tear on the net value of the ETF. Therefore, ETF products are not suitable for long-term holding under such market conditions.
5. ETF automatic adjustment mechanism
ETF actual leverage ratio = basket position * underlying asset price / net asset
For example: the basket position is 3 BTC, the underlying asset price is 10000 USDT, and the basket loan is -20000 USDT, then the net asset = 3*10000-20000=10000 USDT, the actual leverage of the ETF = 3*10000/10000=3
Therefore, when the underlying asset price changes, the actual leverage multiple of the ETF product will fluctuate with the change in the underlying asset price. In order to ensure that the ETF is always at the leverage ratio corresponding to the product, it is necessary to adjust the position.
ETF is divided into two types: timed position adjustment and irregular position adjustment. Among them, timed position adjustment means that the platform will rebalance the position at a fixed time every day to ensure that the ETF is at the agreed multiple leverage at the beginning of each day; Irregular position adjustment refers to the temporary position adjustment when the underlying asset currency fluctuates too much in a single day, and the actual leverage multiple of the ETF exceeds a certain level during the day, and the position adjustment is at the predetermined multiple leverage after the adjustment.
Automatic rebalancing in specific situations:
- Since ETF products need to maintain a constant leverage ratio, after making a profit, to prevent the leverage ratio from reducing the rate of return, the underlying positions will be increased accordingly to enlarge the profits; in case of losses, the leverage ratio will be prevented from increasing, and the underlying positions will be reduced accordingly. Reduce losses.
- In case of ups and downs, the frequent rebalancing process will result in equity wear and tear.
An example of the specific adjustment process is as follows:
Assuming that BTC3L represents 3 BTC and -20,000 USDT, then when the price of BTC is 10,000 USDT, the net asset of BTC3L is 10,000 USDT (3*10,000 USDT-20,000 USDT), and the actual position of BTC3L is 3*10,000 USDT, so Its leverage is 30,000 USDT/10,000 USDT=3 times. When the price of BTC rises to 11,000 USDT, the net asset of BTC3L becomes 13,000 USDT, and the position of BTC3L becomes 3*11,000 USDT. The leverage at this time is 33,000 USDT/13,000 USDT=2.54 times, which is 3 times lower than the target leverage multiple , so you need to buy BTC to achieve 3x leverage.
Position corresponding to target leverage ratio = leverage ratio * net assets = 3*13000=39000 USDT. The position to be purchased is: target position-current position=3*13,000 USDT-33,000 USDT=6,000 USDT, and the amount of BTC purchased is 6,000/11,000=0.545455 BTC. Actual leverage ratio after buying a position=3.545455*11000/13000=3.
6. ETF product merge
1. What is a merge
In order to provide a better user experience, when the net value of ETF products is low, product shares will be combined according to a specific ratio. After the merge, the number of products held will be reduced to the corresponding multiple, and the corresponding product net value will increase to the corresponding multiple at the same time.
Example: The BTC6S product is 100 times merge, the net value before the merging is 0.01 USDT, the account holds 500,000 BTC6S, and the corresponding position value is 5,000 USDT. After the 100-fold merger, the number of positions will be consolidated from 500,000 to 5,000 BTC6S, the net value of the product will increase from 0.01 USDT to 1 USDT, and the account holding value will remain at 5,000 USDT.
2. Changes in ETF Pair Assets
When ETF products are combined, the number of currencies and the net value of the product change by the corresponding multiple, and the value of the account position remains unchanged. However, the changes in the number of products and the net value are completed at the time of merging. During the period from product merging to the reopening of trading, the net value of ETF products is still anchored to the fluctuation of spot value, so the net value will rise or fall during the closing of trading.
7. CoinW ETF product features
1. Multi-currency ETF products
Features: There are many choices of currencies. At present, it has basically covered all mainstream currencies and popular currencies in the past. In the future, the popular currencies in the market will also be listed for the first time.
2. Currency-margined ETF products
Features: An exclusive currency-based ETF product on the entire network, you can directly use spot tokens to participate in ETF transactions, and get more spot tokens after the ETF is profitable, which is a boon for all token holders.
3. High multiple ETF products
Features: The only ETF product with a high multiple of 6 times is supported on the entire network, the spot fluctuation is 10%, and the ETF profit is 60%.
8. Certain risks specific to ETFs
1. Price deviation from net value
The price of ETF products fluctuates around the size of the net value. When the market fluctuates greatly, the market sentiment is high, and there will be a large deviation between the price and the net value of ETF products.
2. Net Wear
Due to the ETF's position adjustment mechanism, when the market fluctuates greatly, it may cause equity wear and tear.
3. Relevant liquidity and pricing risks
Due to the centralized creation and market liquidity of ETF products, CoinW will strive to provide sufficient market liquidity to ensure that the prices of ETF products are within a reasonable range. CoinW will take reasonable measures, including but not limited to capital injection, creating more ETF products and selling ETF products in the secondary market, splitting or merging ETF products to minimize the above risks.