Leverage (Perp Dex)
Borrowed capital used to amplify trading positions and potential returns.
What is Leverage (Perp Dex)?
Leverage in Perp DEXs allows traders to control larger positions in digital assets with a smaller amount of their own capital, borrowing the rest from the platform’s liquidity pool or protocol. For instance, with 10x leverage, a trader with $1,000 can control a $10,000 position. Platforms like GMX offer leverage up to 50x, though higher leverage increases liquidation risk if the market moves unfavorably.
Leverage is facilitated through smart contracts, with the borrowed funds often sourced from liquidity providers’ pooled assets. Traders must maintain sufficient margin to cover potential losses, and Perp DEXs enforce strict liquidation thresholds to protect the protocol. Leverage amplifies both profits and losses, making risk management critical.
Related Terms
TVL (DEX)
Total Value Locked (TVL) on a decentralized exchange (DEX) is the total dollar value of digital assets deposited into liquidity pools, representing the capital available for trading and fee generation.
FUD
An acronym for "Fear, Uncertainty, and Doubt," referring to the spread of negative or misleading information to influence perceptions and behavior in the digital asset market.
Hard Fork of a Blockchain
A permanent split in a blockchain’s history, creating two separate chains due to incompatible consensus rule changes.
Fee Tier
The percentage fee charged on DEX trades, set by liquidity pools and distributed to liquidity providers, varying by pool type and volatility.
DLT
Distributed Ledger Technology - a decentralized digital system for recording transactions across multiple computers, ensuring security and immutability.
Ethereum Scaling
Ethereum scaling encompasses layer 1 protocol upgrades and layer 2 solutions that enhance the blockchain's transaction throughput.