Leverage Optimization

Definition ∞ Leverage optimization in digital asset markets involves strategies and tools designed to maximize returns from borrowed capital while managing associated risks. This practice seeks to achieve the most efficient use of borrowed funds for trading or investment activities. It considers factors such as borrowing costs, collateral requirements, liquidation thresholds, and market volatility. The goal is to enhance capital efficiency without disproportionately increasing exposure to adverse market movements.
Context ∞ Leverage optimization is a constant discussion point within decentralized finance lending and borrowing protocols. News frequently covers new strategies, protocol updates, or risk management frameworks aimed at improving capital efficiency for users. The debate often involves balancing the desire for higher returns with the imperative of maintaining system stability and preventing cascading liquidations during market downturns.