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Analysis

Part 2: Deep Dive into Decentralized Leveraged ETFs

by Erina Azmi -

Disclosure: The content is strictly for your general information only. No part of the content that we provide constitutes financial advice, legal advice, or any other form of advice meant for your specific reliance for any purpose. Any use or reliance on our content is solely at your own risk and discretion. 

This article is the second part of a series of Crypto Leveraged ETFs. If you are not familiar with the basics, I highly recommend you to read Part 1: Introduction to Crypto Leveraged ETFs

For those who don’t know, CoinGecko tracked 130+ leveraged ETFs from various spot exchanges. However, out of all those, there are only two known decentralized leveraged ETFs:

The common truth about leveraged ETFs is they are just terribly designed financial products that would result in severe loss in the long run. However, perhaps the decentralized version could challenge the design and reinvent the product to be able to withstand the decaying effect.

Two questions arise:

  1. How different are they from centralized leveraged ETFs such as ETHBULL and ETHUP from FTX and Binance?
     
  2. Can they be held long-term, unlike their centralized peers?

To answer the first question, we will first establish how FLI tokens work as a decentralized leveraged ETF, including its leverage strategy and rebalancing mechanism. Next, we will deep dive into a liquidity-providing strategy to answer the second question.

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