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Crypto Leverage: Short Crypto & Long Crypto on Polygon zkEVM

September 14th 2023

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As digital assets have begun to enter the financial mainstream with billion-dollar market capitalizations, they have become popular amongst an increasingly diverse investor demographic in recent years. In 2023, there are not only seasoned, experienced investors that are exploring digital assets to hedge inflation, but also savvy, profit-focused traders looking to secure gains from the nascent industry’s notorious volatility. 

For digital asset traders that have a hunch about where the market will move next, leverage trading makes for an enticing endeavor. Leverage trading allows traders to deposit capital onto an exchange and use it as collateral to take out a loan that increases their position size, and therefore their exposure to market movements.

When traders take on crypto leverage, they can use it to long crypto if they think the market will go up, or to short crypto if they think the market will go down. If a trader using crypto leverage is correct, his or her increased position size will earn extra profit. However, if the trader is wrong, his or her increased position size will incur extra losses – up to and including the entire position. Simply put, leverage raises the stakes for traders and enables them to open and manage larger positions than they otherwise would. While taking on leverage to long crypto or short crypto can produce tremendous upside, it also presents significant risks that traders must take into account before opening positions.

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The Next Frontier: Decentralized Leverage Trading

With daily trading volume regularly exceeding $100 million, crypto leverage trading’s rising popularity has led many pioneers in decentralized finance (DeFi) to begin building new and improved platforms. In the past, popular centralized trading platforms such as FTX Exchange maintained opaque capital pools to supply leverage to traders looking to increase their position sizes on the exchange. As a centralized platform with opaque capital management, FTX’s collapse caused many crypto traders to lose all of the funds they deposited on the exchange, and did great damage to industry perceptions as well.

To remedy the inherent flaws of FTX and other centralized exchanges that support leverage trading, new decentralized leverage trading platforms have arrived on the scene to provide crypto leverage traders with the experience they know and love without compromising on the space’s founding principles. Pioneered by decentralized platforms GMX and QuickPerps, the new leverage model enlists cogent incentives to attract a distributed community of users to contribute assets to a fully transparent liquidity pool that is maintained on-chain. When crypto traders arrive on an exchange to long crypto or short crypto with leverage, the extra capital they receive is sourced from the decentralized liquidity pool via smart contracts. As a result, crypto traders never have to worry about dishonest exchange practices or liquidity that mysteriously vanishes when it comes time to withdraw.

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The Best Yet: Leverage Trading on Polygon zkEVM

Since new leverage trading platforms are decentralized, each must find the right blockchain to run its operations. At present, few chains have provided performance comparable to Polygon zkEVM, a leading Layer 2 EVM scalability solution. Polygon zkEVM consistently provides some of the lowest fees and fastest transaction speeds to users, both of which are especially important in the complex world of leverage trading. Whether traders want to long crypto or short crypto, complex transactions involving sourcing or returning liquidity are always required. That is why Polygon zkEVM is emerging as a major chain for decentralized leverage trading with QuickPerps, the leading decentralized perpetual exchange in the Polygon ecosystem, choosing to deploy its platform there.

Wherever the crypto industry is headed next, there will be a massive community of leverage traders betting long and short. Leverage trading is here to stay in crypto, and it will remain one of the space’s most popular use cases as long as volatility remains prominent.