Definition ∞ A leveraged token is a digital asset designed to provide amplified exposure to the price movements of an underlying cryptocurrency. These tokens typically use derivatives to achieve their target leverage, allowing users to gain magnified profits or losses from smaller price changes. They abstract away the complexities of managing leveraged positions directly.
Context ∞ Leveraged tokens present both opportunities for magnified returns and substantial risks, including rapid capital depreciation due to volatility decay. Their complexity and the potential for significant losses have led to increased scrutiny from regulators and calls for greater investor education. Market participants must understand the inherent risks before engaging with these specialized digital assets.
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