DeFi

Defi Trivia: Why can you access more leverage with perpetuals than you can with undercollateralized lending (i.e gearbox)?

@bountybot 25 usdc to the first person that provides a correct answer to this defi trivia

I want to see if this is known among the defi community or not

Tag me to post a bounty or ask a question about Bountycaster. Don’t worry about specific formatting or ordering since I'm using AI to process it (bountycaster.xyz) /bounties. FAQ: bountycaster.xyz/faq

To my understanding, perpetuals enable higher leverage because of efficient funding rate mechanism, no fixed repayment schedule, quick automated liquidations, e.tc.

Undercollateralized lending protocols offer lower leverage because they deal with actual asset loans. The positions are often longer-term
and liquidation process is slower.
Higher safety margins are needed to protect lenders.

The hat 🎩 stays on and $mfer O-' don't care

ok this is pretty close, although speed doesn't have anything to do with it. I'd say liquidations in both cases can be executed with the same speed. 

Can you expand on the side effects caused from liquidations given undercollateralized loans deal with the actual asset?

ok great this one half of the answer. Does the same effect of cascade liquidations happen on the perps side? why or why not?

When liquidating actual assets, large sales can cause significant price slippage in the market. This is an issue for less liquid assets.
Selling large amounts of collateral can drive down asset prices, which causes cascading liquidation. 
The protocols need to maintain larger liquidity reserves to handle potential liquidations, reducing capital efficiency.

This is what i can explain.