BigONE Leveraged ETF Product FAQ

Q 1. What is a leveraged ETF product?

A: A leveraged exchange-traded fund (ETF) product is a marketable security that uses financial derivatives and debt to amplify the returns of an underlying index. While a traditional exchange-traded fund typically tracks the securities in its underlying index on a one-to-one basis, a leveraged ETF product's rise and fall are three times the rise and fall of its underlying asset. For example, for every 1% increase in BTC, BTC3L (3 times long BTC) increases 3%, and BTC3S (3 times short BTC) decreases 3%. Users do not need to pay the collateral assets to achieve the effect of leveraged trading on the target asset. The product has no expiration date, no risk of liquidation, but it contains the risk that the net value might close to zero.

Q2. What are the naming rules and underlying assets of leveraged ETF products?

A: Take the BTC 3X Long product as an example. It’s been fully named as BTC 3X Long, abbreviated as BTC3L. Corresponding to the BTC 3X short product, it is named as BTC3S. From the product name of the leveraged ETF, it can be seen that the currency of the underlying asset is BTC.

Q3. How to buy leveraged ETF products?

A: The purchase method of leveraged ETF products is just like spot trading. Users enter the ETF trading page and use USDT to make purchases.

Q4. What is the total amount of leveraged ETF products?

A: The leveraged ETF product is a financial derivative product, not a digital currency, so there is no concept of total volume as well as the burn volume.

Q5. What is the advantage of leveraged ETF compared with spot?

A: Compared with spot trading, the same asset leveraged ETF will generate 3 times the profit.

Example: Users purchase 1 asset of BTC3L and achieve 3 times profitability in a unilateral rise, and all of this will be managed by platform fund managers, users can easily build their own leveraged investment portfolio without knowing the specific mechanism.

Q6. What are the advantages of leveraged ETF products compared to leveraged trading?

A: Convenient operation, no deposit required.

Example: A user purchases the BTC3L, and the operation is the same as making a spot transaction. The user only needs to buy and sell at the transaction price. His/Her BTC3L will be managed by the platform fund manager, he/she does not need to borrow money or pay the secured assets to achieve the purpose of leveraged trading.

Q7. What are the advantages of leveraged ETF products compared with perpetual contracts?

A: Leveraged ETF products have a unique adjustment mechanism, no margin is required, as well as no risk of liquidation.

However, in the perpetual contract, users need to pay a margin, and if liquidation occurred, users might  lose all their assets.

Q8. Why won't leveraged ETF products liquidate?

A: The unique rebalancing mechanism of leveraged ETF products, When profitable, it will automatically increase the position after the adjustment. In the event of a loss, the position will be automatically reduced after the adjustment to avoid the risk of being liquidated. The adjustment mechanism is to adjust the position of the contract behind each product, and the number of currency holdings will not change.

Q9. What is the rebalancing mechanism (also called the rebalancing mechanism)?

A: BigONE leveraged ETF products have made innovations in the timing rebalancing mechanism of the market. The innovations are timing condition rebalancing and irregular rebalancing. The timing condition rebalancing is changed from the original trigger rebalancing mechanism at 0:00 every day to every Day 0:00 is selectively triggered according to specific conditions. If and only when the market conditions meet certain conditions, rebalancing will be carried out. BigONE leveraged ETF changed the past timing rebalancing to timing conditional rebalancing. After the inspection, this change will greatly improve the market performance of leveraged ETF products. After each rebalancing, the leverage ratio of leveraged ETF products will be adjusted to 3 times or -3 times.
Unscheduled rebalancing refers to the temporary adjustment of positions when the actual leverage ratio of leveraged ETF products deviates from a larger value of 3 times the leverage ratio. After rebalancing, the leverage ratio of leveraged ETF products will return to 3 times. The purpose of the rebalancing mechanism adjustment is to reclassify to 3 times the leverage ratio, and the number of currency positions will not change.

Q10. Under what circumstances will a temporary position adjustment be made?

A: When the market fluctuates drastically, the fluctuation range of the underlying asset compared to the previous rebalance point exceeds a given threshold (in the initial stage, we set the threshold to 15% for 3 times long and short. In the future, if products with other multiples are used, the threshold may change differently.) In order to prevent the underlying contract positions from bursting, the system will automatically trigger the temporary adjustment mechanism to control the risk of the investment portfolio.

Q11. What is the net value?

A: The net value is the current fair market value of the share of the underlying currency. The calculation method of the current net value is: the net value of the previous rebalancing point × {1+ the rise and fall of the underlying currency × the target leverage ratio}

For example: when the position is adjusted at 0 point, the net value is $1, and the net value of the previous rebalancing point is $1. The current net value calculation method is: $1×{1+ the rise and fall of the underlying currency × target leverage}. During the period, the net value has always been based on $1, and will change with the rise and fall of the underlying currency. If an irregular position adjustment is triggered when the net value becomes $0.7, then after this adjustment, the net value of the previous rebalance point becomes $0.7, and then the current net value is calculated as: $0.7×{1+ target currency change× Target leverage}

The actual trading price of leveraged ETF products in the secondary market is anchored to the currency net value. There might be a certain deviation from the net value, but the deviation will not be large. For example, when the net value of BTC3L is $1, the transaction price in the secondary market may be $1.01 or $0.99.

Q12. How can leveraged ETF products amplify profit and loss?

A: Assuming BTC as an example, if BTC rises by 5%, then BTC3L will generate 15% profit and BTC3S will generate 15% loss. 

BTC rise and fall	BTC3L rise and fall	BTC3S rise and fall
10.00%	30.00%	-30.00%
5.00%	15.00%	-15.00%
-5.00%	-15.00%	15.00%
-10.00%	-30.00%	30.00%

Q13. How does leveraged ETF perform in a unilateral market?

A: The unilateral market rises more and falls less. Assuming that BTC rises by 5% every day, the cumulative increase after 3 days is 15.76%, the cumulative increase for BTC3L is 52.09%, and the cumulative decrease for BTC3L is -38.59%. 

Time	BTC rise and fall	BTC3L rise and fall	BTC3S rise and fall
Day 1	5%	15%	-15%
Day 2	5%	15%	-15%
Day 3	5%	15%	-15%
Cumulative rise and fall	15.76%	52.09%	-38.59%

Calculation formula: 

• BTC cumulative increase and decrease=105%*105%*105%-1=15.76%
• BTC3L cumulative increase and decrease=115%*115%*115%-1=52.09%
• BTC3S cumulative increase and decrease=1-85%*85%*85%=38.59%

Q14. How do leveraged ETF products perform in the volatile market?

A: The market fluctuates, and the net value may wear out. Assuming that BTC's rise and fall within 4 days are 5%, -5%, 5%, and -5%, the cumulative rise and fall are -0.5%, and the cumulative rise and fall of BTC3L It is -4.45%, higher than -0.5%*3= -1.5%. Therefore, under volatile market conditions, leveraged ETF products may wear out.

Time	BTC rise and fall	BTC3L rise and fall	BTC3S rise and fall
Day 1	5%	15%	-15%
Day 2	-5%	-15%	15%
Day 3	5%	15%	-15%
Day 4	-5%	-15%	15%
Cumulative rise and fall	-0.50%	-4.45%	-4.45%

Calculation formula:

• BTC cumulative increase and decrease=105%*95%*105%*95%-1= -0.50%
• BTC3L cumulative increase and decrease=115%*85%*115%*85%-1= -4.45%
• BTC3S cumulative increase and decrease=85%*115%*85%*115%-1= -4.45%

Q15. What are the rates of leveraged ETF products?

A: The basic fee rate for trading leveraged ETF products on BigONE is 0.2%. The higher the user's currency score, the higher the VIP level and the lower the transaction fee rate.  At the same time, a daily management fee of 0.1% will be charged to cover the funding rate, transaction fees and other necessary expenses incurred by the fund portfolio, and the management fee rate for a few currencies may be adjusted automatically on a temporary basis in the event of volatile market fluctuations. The management fee will be reflected in the change in net worth and will only be charged at 0:00 Beijing time. If you do not hold the product at that time, no cost will be incurred.

Q16. Why is there a management fee?

A: ETF products need to hedge risks in perpetual contracts, and their costs are high. The 0.1% daily management fee of BigONE leveraged ETF products already includes all costs, including contract market handling fees and funding rates, as well as loss of open market spreads.

Q17. Why are leveraged ETF products merge? What impact will it have on product value?
The merge of shares of leveraged ETF products means that when the net value of the product is too low, affecting transaction convenience and price accuracy, in order to improve the trading experience, the platform will adjust the net value and holdings of ETF products by merging shares. This operation will affect the user's ETF holding quantity and net unit value, but will not affect the total value of the user's holdings.
For example:
At the time of the merge, Alex held 1,000 shares of BTC3S, with the net value of each share being 0.0025334, and the total amount being 2.5334 USDT. After the merge, Alex holds 1 share of BTC3S, with the net value of each share being 2.5334, and the total amount remains unchanged at 2.5334 USDT.