Why did I short LAYER today?

The funding rate for LAYER plummeted to -1.3% to -2.1%. Simply put, there are too many short sellers, and the exchange needs to 'collect interest' to balance positions. This negative funding rate can trigger two chain reactions:

1. Longs are harvested: Long traders have to pay out of pocket, either cutting losses to close positions or facing liquidation, leading to increased selling pressure;

2. Shorts increase their positions: Seeing the negative funding rate, more people join the short-selling army, creating a vicious cycle of 'the more it falls, the more it shorts, the more it shorts, the more it falls.'

The three fundamental reasons behind this

1. The sector collectively crashes

The entire Layer2 sector fell today, with leading projects like POL and OP dropping around 10%. In a panic market, funds prioritize selling off illiquid small coins, and LAYER, being a non-leading project, fell by 40%.

2. The project lacks solid support

LAYER focuses on Layer2 scaling, but the ecological data is disappointing:

TVL (Total Value Locked) is only $12 million, less than 1% of the leading Arbitrum;

Only 3 DApps have launched in six months since the mainnet went live, with daily active users under 10,000;

Such a 'three-no product' (no users, no applications, no funds) suffers the most during market volatility.

3. Capital outflow effect

Today, the AI sector rose against the trend (for example, TAO rose by 5.8%), as institutions and large holders are reallocating their portfolios. Data shows that 60% of the funds withdrawn from Layer2 have flowed into AI and RWA (Real World Asset tokenization) concepts, leaving the remaining small coins vulnerable to being drained.

So how can ordinary people avoid the pitfall?

Don't catch the bottom in the short term: The funding rate hasn't returned to positive, indicating that the shorts haven't retreated and may continue to decline;

Look at ecological data: If the TVL can break $20 million in the next two weeks, or if it lists contracts on Binance, there may be a chance for a reversal;

Pay attention to sector rotation: As Layer2's popularity fades, the next wave may be AI or the Bitcoin ecosystem, so don't stubbornly cling to weak coins.

Summary: The sharp decline of LAYER is a triple blow of 'poor market environment + lack of competitiveness + capital flight.' This coin either needs to wait for the market maker to pump it or for sector rotation to return; ordinary people should not become exit liquidity.