Tiered Leverage

Tiered leverage is a risk management mechanism used by exchanges to limit the amount of leverage available to traders based on the size of their position. As a position size increases, the maximum allowable leverage decreases to prevent excessive systemic risk and potential liquidation cascades.

This structure ensures that larger positions, which have a greater impact on market liquidity and order flow, are backed by a higher proportion of collateral. It acts as a circuit breaker within the margin engine, protecting the protocol from insolvency during periods of high volatility.

By scaling leverage down as exposure grows, exchanges manage the contagion risk inherent in large-scale liquidations. This approach aligns the incentive structures of traders with the overall stability of the trading platform.

It is a fundamental component of modern crypto-derivative protocol architecture.