Justin Sun Addresses Ethereum’s Leverage Issue

Justin Sun, a crypto billionaire and the creator of the Tron blockchain, has drawn the crypto community’s attention to a major issue on Ethereum that he sees as dangerous for its near future.

Sun Addresses Ethereum’s Leverage Issue

Justin Sun believes that Ethereum is facing a significant issue with high leverage used by traders conducting operations with ETH on both centralized and decentralized platforms. Sun tweeted that in the short term, this problem is likely to implode and “cause losses to protocols and DeFi projects” on the Ethereum network.

Sun urged the Ethereum team to address this issue early and “resolve some of the leverage” rather than wait for the situation to peak and explode, harming Ethereum DeFi users. He recommended “a negotiated solution.”

Leverage Use on Ethereum Expands Rapidly

The issue mentioned by Sun refers to the excessive leverage in ETH-based trading, which has been increasing significantly lately. This is notably evident in derivative markets such as options and perpetual futures. Many traders are using up to 50x (and sometimes even 100x) leverage when trading ETH on large platforms, leading to excessive liquidation risks amid price volatility.

Additionally, ETH is widely used as collateral in various Ethereum-based DeFi protocols. High leverage means a sudden drop in ETH price may trigger mass loan liquidations, intensifying bearish market pressure.

When leverage becomes excessively high, it can lead to funding rates surging, prompting traders to short ETH, likely resulting in market corrections.

A commentator responded to Sun’s post, sharing data indicating that as of today, Ethereum’s leverage stands at 5–10x on $50 billion in exposure, representing roughly 11–14% of its $440 billion market cap. This poses significant risk, as daily liquidation volumes have already risen to $50-$70 million, showcasing active trading reliant on leverage.

Ethereum Rebounds After 15% Crash

Over the past 24 hours, Ethereum, the second largest cryptocurrency, crashed by a staggering 15%, dropping to $1,811 earlier today. However, it has since rebounded by 6%, slightly reducing its losses and currently trading at $1,920 per coin.

This price action mirrors Bitcoin’s fall below the $80,000 level on Monday and the subsequent rise that followed.