DeFi Recursive Leverage

DeFi recursive leverage involves using a protocol to borrow an asset, which is then deposited into another protocol to borrow more, creating a loop. This process significantly magnifies exposure to the underlying assets and the risks associated with them.

While it can lead to high yields, it also creates extreme sensitivity to price drops. If the value of the collateral falls, it can trigger a liquidation loop across multiple protocols.

This type of leverage is a major driver of systemic risk in the decentralized finance space. Understanding the path of this leverage is crucial for assessing the overall health of the DeFi ecosystem.