Earn 20% with Ethereum LP by Defi Dad

Leverage is a controversial topic in crypto. You’ve either heard about a friend who made a lot more money because of leverage or you know a  friend who lost everything “because of leverage.” Recently, a famous trader Bill Hwang lost a $20B fortune over 2 days, due in part to his use of leverage.

The truth is leverage is a very useful and common tool in the world of finance and now in the new world of DeFi. Leverage is when we borrow capital to invest and increase the potential return of an investment. Leverage can also refer to the amount of debt a firm uses to finance assets. Whether you use options, futures, or crypto perpetuals markets, leverage allows you to invest more, gain more exposure to an asset’s price, and hopefully realize a larger return.

The downside to leverage is that you can also lose more capital, faster than you would without leverage. In DeFi unlike in TradFi, we cannot establish the same credit-based relationships enforced by the laws of a sovereign nation because everything happens on-chain with anonymous wallets. For this reason, in DeFi whether you’re trading on dYdX’s perpetuals market or holding an overcollateralized loan on Aave, you’re at risk of being liquidated if the market moves against you and you do not maintain your loan-to-value ratio. Liquidation is the one way we can guarantee on-chain that borrowers will not default on their loans and leave DeFi lenders with a loss. 

Since liquidation is a necessary money lego in DeFi and given leverage has proven to be in high demand in DeFi, one killer product-market fit identified by the Index Coop is to offer a safe and efficient