お知らせ Explanation on the Performance of ETF Leveraged Token Products under the Market Conditions of October 11

Explanation on the Performance of ETF Leveraged Token Products under the Market Conditions of October 11

2025-10-11 12:28:09 UTC 12167 読む

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Around 21:00 on October 10 (UTC), 2025, the global cryptocurrency market experienced significant volatility, with some underlying assets undergoing rapid and deep "V-shaped" reversals in a short period of time. During this period, we observed that some leveraged token products on the platform (including S short-type and L long-type) experienced significant price declines.

We are fully aware that many users are confused and anxious about this situation and attach great importance to it. This announcement is hereby issued to explain in detail the operating principles of leveraged tokens under extreme market conditions, and to clarify that our ETF leveraged token product operations fully follow established, public mechanisms, with no abnormalities.

### **Review of Core Mechanism of Leveraged Token Products: Why Did Deep Declines Occur?**

ETF leveraged tokens are financial derivatives that track the volatility of an underlying asset through perpetual contracts. Through a rebalancing mechanism, users' investments are maintained at the target leverage multiple, such as 3x or 5x, to achieve the purpose of amplifying returns.

In this round of market movements, the prices of many underlying assets fluctuated by more than 50% in a short period. Leveraged tokens amplify the price movements of the underlying assets by 3x / 5x through their operating mechanism. In theory, the volatility of the corresponding ETF leveraged tokens will exceed 100%. The product decline you see is actually the intuitive result of a net value drop of more than 99%, which is consistent with the product design mechanism.

### **Why Did Both Long and Short Products Experience Price Declines Simultaneously?**
**Principle: "Leverage Decay" Occurs During Large Bidirectional Short-Term Volatility**

Simultaneous declines in long and short products are a typical phenomenon in highly volatile markets, which we call "volatility decay." This is not a contradiction, but rather a double-edged sword characteristic of leveraged token products.

The net value change of leveraged tokens is "path-dependent," rather than a simple linear addition of rises and falls. It calculates the compound rise and fall after each rebalancing cycle. (In simpler terms, the rise and fall of leveraged tokens are calculated based on the price at the previous balance point, unlike other products such as contracts or spot, which simply calculate the rise and fall based on a 24H rolling period.)

Let us illustrate with a simplified example: Suppose the underlying asset (1 USDT) first falls by 20%, then rises by 25% back to the starting point (1->0.8->1)

* For 3x L token: First fall 20% × 3 = 60%, net value becomes 0.4. Then rise 25% × 3 = 75%, net value becomes 0.4 × 1.75 = 0.7. Final net value is 0.7, loss 30%
* For 3x S token: First rise 20% × 3 = 60%, net value becomes 1.6. Then fall 25% × 3 = 75%, net value becomes 1.6 × 0.25 = 0.4. Final net value is 0.4, loss 60%

In this classic "round trip" market, the net value of both S and L tokens declined. The rapid deep V movement in the early morning precisely triggered this most typical volatility decay. Even if the price of the underlying asset returns to the starting point, the net value of the leveraged token cannot return to the starting point due to this series of transactions, resulting in significant attenuation. This is an inherent risk exposure in the design mechanism of such financial products, not a platform operational error or systemic failure.

In addition, the "wear" effect of leveraged tokens is directly related to market volatility and leverage multiple. The more intense the volatility and the higher the leverage multiple, the more pronounced the wear.

Therefore, for highly volatile assets such as FARTCOIN5L/5S, LINK5L/5S, GALA5L/5S, the wear of 5x leveraged tokens will be very significant. In contrast, mainstream assets such as BTC, ETH, SOL, etc., have relatively small volatility, so the wear is relatively moderate.

### **Why Did the K-Line Trend of ETF Leveraged Token Products Not Follow the Underlying Trend at Certain Times?**
**Principle: Premium/Discount Caused by Net Value Delay, Decay, and Market Sentiment Fluctuations**

The market price of leveraged tokens is determined by supply and demand. When the market reverses, a large number of users enter to buy or sell, which causes a certain deviation between the net value of the leveraged token and the order book trading price.

* Premium: Trading price > Net value. Indicates extremely strong buying, with participants willing to pay an "extra fee" to chase the rise.
* Discount: Trading price < Net value. Indicates extremely panicked selling, with participants willing to "sell at a discount" to stop losses.

When placing orders, users should pay attention not to let the order price deviate too much from the net value to avoid losses.

In this incident, all operations of leveraged token products, such as rebalancing and net value calculation, strictly followed preset, public algorithms and rules, with no deviation.

ETF leveraged tokens can provide opportunities for amplified returns in clear one-way markets, but in volatile markets, high leverage will cause asset values to shrink rapidly. We once again strongly recommend all users: Before trading, be sure to read the product documentation thoroughly, fully understand the core concepts such as the rebalancing mechanism, leverage decay, and funding fees.

We hope the above explanation helps you understand leveraged token products. For more information on product mechanisms, please refer to the <a href="https://www.gate.com/en-us/help/trade/leverage_tokens/17343/about-gate-etf-leveraged-tokens" target="_blank">documentation</a>.

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Explanation on the Performance of ETF Leveraged Token Products under the Market Conditions of October 11

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