Tokens can have leveraged returns because of the way pools are structured. Each pool has two sides, long and short. In this design, long and short traders are opposite each other; they are counterparties whose profit is equal to the other's loss, and vice versa. The two parties have an agreement: they will update the amount of collateral in each side of the pool based on the price of another asset. If the price goes up, the long side gets a percentage of the short side's collateral. If the price goes down, the short side gets a percentage of the long side's collateral.