Gate.io provides 3X-long (-3L) and 3X-short (-3S) ETFs of multiple mainstream cryptocurrencies, and additionally offers 3X-long (-BULL) and 3X-short (-BEAR) ETFs managed by FTX platform. The 3X-leveraged ETFs are provided with strict funds management and are hedged for margin trading in the Perpetual Contract market. The leverage rate is corrected daily to remain leveraged at 3X through the rebalancing of the ETFs; users can easily trade on margin without paying any collateral.
ETF products are governed as hedge funds in the Perpetual Contract market, which requires 0.3% daily management fees to cover the costs of the handling fees and market quotations arisen in the contract market. Except for the management fees, no extra contract funding rate is charged. ETF products are provided with optimized funds management, which strives to diminish the costs and risks of margin trading.
ETF products run under strict rules. Please note that it is significant to read about the rules carefully before the trade.
As for the recent questions about the principles and rules of ETFs, a detailed explanation can be found below:
1. The price of the ETF products depends on their spread, irrespective of the price of their underlying token. Users can refer to the net value during trading.
2. The net values of ETFs are definitely not set by the platform, but are computed according to a relevant formula. The net value represents the current fair value of that ETF product’s share. Current net value = net value of previous rebalancing point * (1+ leveraged rate * spread of the subject matter)
3. The leverage rate is corrected daily to remain leveraged at 3X through the rebalancing of position. For example, scaling in when gaining profits and scaling out when suffering loss. 3X-long and 3X-short ETFs managed by Gate.io are corrected at UTC 00:00 every day.
4. The rate of rise or fall of the ETF products is not always 3X that of the underlying token. After the daily rebalancing, the position management may change and the trend of the market can not be anticipated, hence users may confront either gains or loss according to the change of the market sentiment.
5. “3X” of the 3X-long and 3X-short ETFs means users can gain 3X yield after the rebalancing. For example, if the rate of the rise or fall of BTC is x%, without taking incurring irregular rebalancing into account, that of 3X-long BTC (BTC3L) is 3x% and that of 3X-short BTC (BTC3S) is -3x%.
6. ETFs don’t remain leveraged at 3X of the underlying token at all times. After daily rebalancing, the leverage will recover at 3X, but with the change of the market sentiment it may not remain that rate until the next rebalancing.
7. 3X-leveraged ETFs can resist 33% market decline without returning to zero (RTZ). With the recent plunge of BTC price barely seen in the history, many underlying tokens of the ETFs maintained by Gate.io slumped by over 40%, which far exceeded the 33% decline-resistance causing the forced liquidation of the hedge position in the Perpetual Contract. To avoid users’ 3X-long assets returning to zero, Gate.io has immediately rebalanced the position and scaled out again after the forced liquidation by consuming 500,000USD. The loss was covered by Gate.io.
8. The 0.3% daily management fees are deducted from the net value during the rebalancing, so it doesn’t affect the users’ trading funds of ETF products.
9. The 0.3% daily management fees of Gate.io ETF products cover the costs of the handling fees and market quotations arisen in the contract market and the spread loss when taking position. The ETF products managed by FTX charges 0.03% daily management fees which doesn’t include the costs of the handling fees and market quotations arisen in the contract market and the spread loss when taking position.
10. Some users consider the management fees high, but actually the ETF products cause high costs when they are hedged in the Perpetual Contract. Up till now, not considering the handling fees of the spot trading, the ETF management fees have not been able to cover the costs. Please note that the loss has been covered by Gate.io instead of being deducted from the net value.
11. Gate.io will launch the ETF portfolio and inverse ETFs at low leverage. With optimization with unique technique, the costs of the new products will greatly reduce, which can help save management fees for the users.
12. On account of the regulation, the yield will be larger if the price keeps rising after scaling in or the price keeps dropping after scaling out in the margin trading of leveraged ETFs; conversely, the yield will be worse if the market sentiment is swaying. For example, scaling in when the market sentiment is bullish, but if the market sentiment turns bearish later, it will cause larger loss. Or scaling out when the market sentiment is bearish, but if the market sentiment turns bullish later, it is harder to cover the loss during the drop.
13. Gate.io only provides spot trading of the ETFs products of “-BULL” and “-BEAR” to users, but doesn’t manage the products, so the net value of them remain unclear. Please note that low circulation on the market may lead to a large deviation between the strike price and the net value. The ETFs products of “-BULL” and “-BEAR” will be off the platform later.
For more explanation of the ETFs, please refer to FTX’s documentation of relevant products. Gate.io will soon provide detailed documentation for your reference.
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March 13, 2020
