DeFi

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

Because perpetual contracts manage risk more efficiently which enables greater leverage, let me explain;
You can access more leverage with perpetuals because they use real-time liquidation engines, allowing for fast position closure if prices move against you. This quick liquidation process reduces the risk for exchanges, enabling them to offer higher leverage (up to 100x or more). In contrast, undercollateralized lending protocols like Gearbox rely on slower, on-chain liquidation processes and off-chain oracles, which introduce delays. These delays increase the risk of bad debt, leading to more conservative leverage limits. Perpetuals also typically require only a small margin to maintain positions, while lending protocols demand higher collateralization ratios.