Sun pointed out that traders are increasingly employing extreme leverage—sometimes up to 50x or even 100x—in derivative markets like options and perpetual futures. This overextension not only exposes traders to heightened liquidation risks during volatile price swings but also places significant stress on Ethereum-based DeFi protocols that use ETH as collateral. As leverage surges, funding rates could spike, potentially driving traders to short ETH and intensifying downward pressure.
Over the past 24 hours, Ethereum experienced a sharp 15% crash, dropping to $1,811, before rebounding 6% to trade at $1,920. This volatility mirrors Bitcoin’s recent dip below $80,000 followed by a quick recovery, underlining the turbulent market conditions driven by leverage-related risks. A commentator noted that Ethereum’s leveraged exposure now accounts for roughly 11–14% of its $440 billion market cap, with daily liquidation volumes between $50-$70 million—an alarming indicator of risk.
Justin Sun’s warning serves as a cautionary note for the Ethereum community. With the potential for massive liquidations looming, the need for the Ethereum team to address and mitigate excessive leverage is becoming increasingly urgent to safeguard the stability of its DeFi ecosystem.