How Leverage and Volatility Kill Positions: The ETH Week
In DeFi, there will always be a strategy that promises to “accelerate returns” through leverage. But in reality, leverage combined with market volatility is most often the reason positions get wiped out. Last week, we saw this live — with ETH as the example.
What happened?
After a sharp rally, Ethereum corrected. At first glance, it looked like a normal market move: –7–10% over a few days. But for those who used leverage, these percentages turned critical.
- Lending protocols recorded mass liquidations.
- Overleveraged positions were automatically closed.
- Even professional traders underestimated the strength of the swings.
Result: millions of dollars in liquidated positions — while investors without leverage simply waited out the correction.
Lesson №1. Leverage amplifies risk, not just returns
Leverage works symmetrically: it accelerates not only growth but also losses. In DeFi, this is especially critical, as liquidations are executed automatically by smart contracts — leaving no chance to “wait it out.”
Lesson №2. Volatility = the main enemy of inexperienced investors
ETH remains one of the market’s core assets, yet even it can swing 7–10% within days. For a leveraged position x2–x3, this already poses a threat of complete capital loss.
Lesson №3. Hedge and diversification matter more than forecasts
No one can predict the exact market move. But you can build a system that withstands different scenarios:
How Plexico solves this
In our strategies, leverage is not used as a primary tool. Instead, we focus on:
- distributing liquidity between stablecoins and volatile assets,
- diversifying across protocols (lending, DEX, liquid staking),
- using algorithms to automatically manage risks.
This approach helps smooth drawdowns and preserve capital even during periods of high volatility.
Conclusion
The ETH story once again highlighted: in DeFi, winners are not those chasing fast gains with leverage, but those who think like portfolio investors. Volatility is inevitable, but it is risk management that makes returns sustainable