ETF is similar to leveraged ETF products in traditional markets, which track a certain multiple of the target asset's daily rise and fall. Users do not need to pay for the collateral assets to achieve the effect of leveraged trading on the target assets. The product has no expiration date, but there is a risk that the net value will be close to zero. You can know the multiple of the product and the direction of long and short through the name of the ETF.
E.g:
BTC3L: 3 times long BTC, when the underlying asset price increases by 1%, the net value of the product increases by 3%;
BTC3S: 3 times short BTC, when the underlying asset falls by 1%, the net value of the product increases by 3%
1. ETF pricing mechanism
1-1. Net worth calculation
Equity = Basket Position * Underlying Asset Price + Basket Loan
Basket Position: The number of underlying assets held by each ETF
Basket Loan: the number of borrowed coins held by each ETF
For example: BTC3L, the basket position is 3BTC, the underlying asset price is 100U, and the basket loan is -200U, then the net value = 3*100-200=100U
2. Calculation of the actual leverage multiple of ETF
Leverage multiple of ETF = basket position * underlying asset price / net value
For example: the basket position is 3BTC, the underlying asset price is 100U, and the basket loan is -200U, then the net value = 3*100-200=100U
Actual leverage ratio of ETF=3*100/100=3
3. The adjustment mechanism of ETF
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; Regular position adjustment refers to the temporary position adjustment when the actual leverage multiple of the ETF exceeds a certain level during the day, and the position adjustment will be at the predetermined multiple leverage after the adjustment.
The specific repositioning process is as follows:
Assuming that each BTC3L represents 3 BTC and -20,000USDT, then when the price of BTC is 10,000USDT, the net value of BTC3L is 10,000USDT (3*10,000USDT-20,000USDT). In fact, the position of each BTC3L is 3*10,000USDT. Therefore, its leverage is 30,000USDT/10,000USDT=3 times. When the price of BTC rises to 11,000USDT, the net value of BTC3L becomes 13,000USDT, and the position of each BTC3L becomes 3*11,000USDT, and the leverage at this time is 33,000 USDT/13,000USDT=2.54 times, which is 3 times lower than the target leverage, so you need to buy BTC to achieve 3 times leverage.
The position to be bought is: target position - current position = 3*13,000USDT-33,000USDT=6,000USDT, and the amount of BTC bought is 6,000/11,000=0.54BTC.
4. Share Merger and Split Mechanism
In order to provide a better user experience, CoinW will merge or split the shares of ETF products in proportion under certain circumstances, and will notify users in the form of an announcement.
Share mergers and splits refer to proportionally shrinking or increasing the number of ETF products issued, raising or lowering the nominal value of a single token. For example, when extreme market conditions cause the value of ETF products to decline, ETF product share consolidation usually occurs to improve the liquidity and price of tokens.
Example: Start the share merger mechanism for the ETF product ETH3S. The coefficient of share merger is 5000:1. At that time, the 5000 shares of ETH3S originally held by the user will be held as 1 share of ETH3S after the merger.
CoinW recommends that all users who hold ETF products evaluate their holding risks in advance, and can control risks by selling ETF products in advance before merger or splitting.
Risk warning:
ETF fluctuate greatly. Due to inherent market risks, fees, slippage, position adjustment algorithms, and any unknown risks associated with ETF, the net value of ETF may return to zero or the products go offline. Please hold them with caution.