📚 Educational Thread: Deleveraging & The Art of the Moonshot 📚

Ever wondered what causes those sudden, violent "crypto crashes" or how to find the next big coin before it pumps? Let's break down two critical concepts: Market Deleveraging and On-Chain Moonshot Hunting.

1. 🌀 What is Market Deleveraging?

In simple terms,deleveraging is the process of the market forcibly closing out excessive debt . In crypto, this happens most dramatically in the perpetual futures market.

Think of leverage like a magnifying glass: it amplifies gains but also massively multiplies losses. When traders use high leverage (e.g., 20x) to open long positions and the price suddenly drops, their equity can fall below the maintenance margin . This triggers a forced liquidation by the exchange.

This creates a domino effect:

· Wave 1: A price drop forces the first group of leveraged longs to liquidate.

· Wave 2: These liquidations (selling) push the price down further.

· Wave 3: The lower price triggers the next wave of liquidations .

This chain reaction is why we see "waterfall" or "cascade" liquidations, where billions of dollars in positions can be wiped out in hours . While painful, this is a market self-correction mechanism that flushes out unhealthy leverage .