# Concept of Leveraged Token

## Concept of Leveraged Position

The Leveraged Position represents the USD price exposure of the underlying token. In other words, the entire value change of the underlying token is fully reflected in the value of the Leveraged Position.

<figure><img src="/files/lsMhJIkDOtA0o5dSZTnR" alt=""><figcaption></figcaption></figure>

#### Example

Continuing from the earlier example:

Suppose 1 SOL = $200, split into Funding Position ($100) + Leveraged Position ($100). If the SOL price instantly increases from $200 to $220 (+10%),

* The Leveraged Position value increases from $100 to $120 (+20%).
* This shows the 2x leverage effect in action.<br>

The value of the Leveraged Position in USD terms is:

$$
Leveraged\ Position\ Value = Underlying\ Token\ Value\ –\ Funding\ Position\ Value
$$

## Mooncake's Leveraged Token

All leveraged positions from leverage users are pooled together inside a single Leveraged Vault, and the receipt of this vault is the Leveraged Token (LT).

Whenever the price of the underlying token moves enough to hit the rebalance threshold, all leveraged positions inside the vault are replaced with a new set of positions of the same value.<br>

This ensures that the effective leverage ratio of the LT remains constant.<br>

For example, in a 3× LT market, if the price of the underlying token increases and causes the effective leverage of the LT to fall below 3×, then during the rebalance the Leverage Vault needs to obtain additional risk exposure from the LP in order to restore the target leverage.


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