Systemic Leverage, in the context of crypto, refers to the aggregate amount of borrowed capital utilized across the entire digital asset financial system, including centralized exchanges, decentralized lending protocols, and derivatives platforms. This metric indicates the collective risk exposure and the potential for magnified market movements.
Mechanism
This leverage functions by allowing market participants to control larger positions with a smaller amount of their own capital, primarily through margin trading, perpetual swaps, and collateralized lending. The accumulation of these leveraged positions across numerous entities and protocols creates a network of interconnected financial obligations.
Methodology
Assessing Systemic Leverage involves aggregating data on open interest in derivatives, total value locked in lending pools, and margin account balances across the ecosystem. Analytical methodologies aim to quantify the potential for rapid deleveraging events, where a decline in asset prices triggers widespread liquidations, amplifying volatility and increasing systemic risk within crypto markets.
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