Leveraged Tokens vs. Perpetual Futures: A Simpler Alternative for Traders

If you've been trading in DeFi, you've likely come across perpetual futures, the go-to tool for leveraged trading.

But let’s be honest—managing perps can feel like juggling a dozen spinning plates. Between margin calls, leverage drift, and funding rates, things can get complicated fast.

Enter Synthetix’s leveraged tokens, a simpler and more accessible alternative that strips away the complexity while keeping the power of leverage intact.

So, how do leveraged tokens compare to perpetual futures? In this article, we’ll explain it all using some relatable analogies.

Perpetual Futures: Like Borrowing on a Credit Card

Let’s start with perps. Think of perpetual futures as borrowing on a credit card to amplify your exposure to an asset. You take on a position (long or short), and the exchange lends you the extra leverage. But just like with credit cards, you’ve got responsibilities:

Keep an Eye on Your Balance: If the value of your collateral drops, you’ll need to top it up or face liquidation.
Pay Your Fees: Funding rates can add up over time, especially if you’re holding a position long-term.
Mind Your Leverage: The leverage factor shifts as the asset’s price changes, so your exposure isn’t as stable as you might think.

Managing a perp position requires active oversight. If you’re not on top of it, things can go sideways quickly.

For traders who thrive on control and strategy, perps offer flexibility. But for many others, they’re a bit of a headache.

Leveraged Tokens: Trading Made Simple

Now, imagine a world where you could get the benefits of leverage without the constant babysitting.

That’s what Synthetix’s leveraged tokens are designed to offer.

These ERC-20 tokens represent a leveraged position (e.g., 2x or 3x) on an asset, with none of the hassles of margin management or liquidation risk.

How They Work

When you buy a leveraged token, you’re essentially getting pre-packaged leverage.

The token’s leverage factor is maintained through a rebalancing mechanism that adjusts the margin-to-notional ratio whenever needed.

This is all powered by Synthetix’s Perps V2 engine, which ensures smooth execution and deep liquidity.

The best part?

You don’t have to do a thing—it’s all handled automatically.

Let’s say you hold a 2x long token on ETH.

If ETH’s price drops and the leverage factor drifts above the target range, the system rebalances to bring it back to 2x.

No margin calls, no stress.

Leveraged Tokens vs. Perpetual Futures: A Head-to-Head Comparison

Let’s look at the key differences between these two tools in a way that’s easy to digest:

Feature	Leveraged Tokens	Perpetual Futures
Margin Management	None required	Actively managed
Liquidation Risk	None	High, if margin falls below maintenance level
Leverage Stability	Maintains constant leverage through rebalancing	Leverage drifts with price changes
Accessibility	Simple ERC-20 token interface	Requires understanding of margin mechanisms
Fees	Transparent token fees	Funding rates and trading fees

Why Leveraged Tokens Are Like a Fixed-Rate Mortgage

To borrow another analogy, think of leveraged tokens as a fixed-rate mortgage.

Once you’ve locked in your terms (e.g., 2x or 3x leverage), you know exactly what to expect.

There’s no need to check in every day to make sure your balance is where it needs to be. Perps, on the other hand, are more like an adjustable-rate mortgage. They offer flexibility but require constant vigilance to avoid unpleasant surprises.

When to Choose Perpetual Futures

Of course, there are times when perps might still be the better option. For example:

Active Trading: If you’re making quick moves and adjusting your positions frequently, perps give you the control you need.
Custom Leverage: Need 7x leverage? Leveraged tokens won’t offer that, but perps can.
Advanced Strategies: For hedging or arbitrage, the granular control of perps can be invaluable.

But if you’re looking for a simpler, less stressful way to trade with leverage, leveraged tokens are hard to beat.

The Bottom Line

Synthetix’s leveraged tokens strip away the complexity of perpetual futures while preserving the core benefits of leverage.

With no margin calls, no funding rates, and no need to constantly adjust your positions, they offer a straightforward solution for traders of all experience levels.

So the next time you’re considering a leveraged trade, ask yourself: Do you want the flexibility of perps, or the simplicity of leveraged tokens? For many traders, the answer will be clear.

Mint leveraged tokens here: https://leverage.synthetix.io/

Learn more about Synthetix leveraged tokens here: https://docs.synthetix.io/leveraged-tokens