Once again this year, we would like to sweeten the Advent season for our readers with an Advent calendar. In a slightly different form, each door contains a “knowledge bomb”, which will be supplemented with an extraordinary special prize on Christmas Day.
Behind the sixteenth door is the term “Leverage”. To enter the giveaway on the 24th, simply participate in the polls and like the respective Twitter posts.
Leverage
In the world of finance, leverage refers to a leverage effect in which the potential profit can be increased many times over by taking a high risk. While leverage increases the expected profit, it also increases the risk to lose an investment. In the crypto world, leverage on centralized exchanges is a tool actively used by private investors – in most cases with little success. This year, however, has been primarily marked by over-leveraging at the institutional level.
The Terra debacle in the spring started a domino effect that wiped out various players with too much leverage. The first and most serious was none other than the former largest crypto hedge fund, Three Arrows Capital. By rehypothecating their illiquid collateral, they built a multi-billion empire that imploded after the bull market ended. The aftermath dragged on to the FTX/Alameda debacle – the next construct to burn its fingers on excessive leverage.
