Rebalancing is a process to ensure that the Perpetual Contracts positions of the underlying asset will be dynamically adjusted — either increase or decrease —  to achieve the target leverage. The rebalancing mechanism will automatically be triggered when the actual leverage falls outside the target leverage range.  

 

 

 

How do Bybit Leveraged Tokens rebalance?

Bybit Leveraged Tokens have a targeted leverage range. The rebalancing mechanism

only activates when the actual leverage exceeds the target range.

 

Taking BTC3L as an example, the target leverage range is [2,4]. The rebalancing mechanism will automatically be triggered when the actual leverage is ≥ 4x or ≤ 2x in order to achieve the target leverage of 3x. Therefore, there are no liquidation risks for Leveraged Token products.

 

However, please be aware that the net asset value (NAV) of a Leveraged Token could fall to zero as the rebalancing mechanism may not be able to keep pace with the volatile price movements, resulting in the system failing to adjust the Perpetual Contracts positions of the underlying asset accordingly when the actual leverage fluctuates beyond the targeted range in extreme market movements. 

 

After Leveraged Tokens are rebalanced, the rebalancing information — such as rebalance time (UTC), a position change in the basket, and leverage adjustments — will be displayed under Rebalancing History on the About This Leveraged Token page. Traders can view the history of all rebalancing events in this column.

 

Note: Traders are not allowed to purchase or redeem tokens during rebalancing.

 

 

Example

Let's look at an example to see how the Bybit rebalancing mechanism works.

In this example, Trader A has opened a position of the Leverage Token BTC3L. 

 

 

 

Factors

BTCUSDT Perpetual Contract price: $40,000

Leverage: 3x

Target leverage range: [2,4]

Initial NAV: 10 USDT

Basket: 300 BTC worth of Long BTC/USDT Perpetual Contracts Positions

Circulating supply: 400,000 

 

During the period of holding the position, the price of the BTCUSDT Perpetual Contract and the net asset value of BTC3L change as follows:

 

	Price of BTCUSDT Perpetual Contract	Change in Net Asset Value of BTC3L	ROI of BTC3L over the 5-day Period
Day 1	$40,000	0%	−8.33%
Day 2	$44,444	33.33%
Day 3	$40,000	0%
Day 4	$35,556	−33.33%
Day 5	$40,000	−8.33%

 

 

Day 1

• BTCUSDT Perpetual Contract price: $40,000
• Initial NAV: 10 USDT
• Actual leverage : 3x

 

 

 

Day 2

The price of the BTCUSDT Perpetual Contract increased by 11.11% (from $40,000).

• BTCUSDT Perpetual Contract price: $44,444
• NAV: 13.3333
• Cumulative change in NAV: 33.33% 
• Actual leverage: 2.5

The values ​​shown above are based on the following calculations:

 

Formula

NAV = Initial NAV × (1+ Leverage × Changes in the price of Leveraged Token)

Cumulative change in NAV = (NAV - Initial NAV) / Initial NAV

Leverage = Basket × Underlying asset price/ (NAV of the Leveraged Token × Circulating supply)

 

NAV = 10 × [1 + 3 × (44,444 − 40,000)/40,000] = 13.3333     

Cumulative change in NAV = (13.3333 − 10)/10 = 33.33% 

Actual leverage = (300 × 44,444)/(13.3333 × 400,000) = 2.5

 

 

 

Day 3

• BTCUSDT Perpetual Contract price: $40,000
• NAV: 10
• Cumulative change in NAV: 0% 
• Actual leverage: 3x

 

 

 

Day 4

• BTCUSDT Perpetual Contract price: $35,556
• NAV: 6.667
• Cumulative changes in NAV: −33.33%
• Actual leverage (before rebalance): 4

 

The values ​​shown above are based on the following calculations:

NAV = 10 × [1 + 3 × (35,556 − 40,000)/40,000] = 6.667     

Leverage = 300 × 35,556/(6.667 × 400,000) = 4

            

Since the actual leverage is equal to 4x, the rebalancing mechanism is triggered, and the system reduces the Perpetual Contracts positions of the underlying asset in the Basket.

 

Formula

Current position = Basket × Underlying asset price

Target position = NAV × Circulating supply × Target leverage

Rebalance position = (Target position − Current position) / Underlying asset price

 

Current position = 300 × 35,556 =  10,666,800  

Target position = 6.667 × 400,000 × 3 = 8,000,400

Rebalance position = (8,000,400 − 10,666,800)/35,556 = −75

Actual Leverage (after rebalance) = (300−75) × 35,556/(6.667 × 400,000) = 3                                       

The system reduces the Perpetual Contracts positions of the underlying asset by selling 75 BTCUSDT Perpetual Contracts. Positions are adjusted to ensure that the actual leverage returns to the target leverage.

 

— Note: Rebalancing by adding more contracts will not be triggered in the event that the maximum position limit for perpetual contract is reached.

 

 

 

Day 5

• BTCUSDT Perpetual Contract price: $40,000
• NAV: 9.167
• Cumulative change in NAV: −8.33%
• Actual leverage: 2.45

On Day 5, the BTCUSDT Perpetual Contract price fell back to $40,000, which was the price when BTC3L was purchased on the first day. BTC3L still recorded a loss of −8.33%. This is due to the fact that the rebalancing eroded the NAV of the Leveraged Token.

 

In a volatile market, the actual leverage may frequently exceed the leverage target range, which means that the rebalancing mechanism will be triggered accordingly to maintain leverage within the target range. Thus, Leveraged Tokens are not suitable for long-term investments.