Leverage Ratio Limits

Definition ∞ Leverage ratio limits are regulatory restrictions placed on the amount of borrowed capital that financial entities, including digital asset platforms, can use relative to their own equity. These limits are implemented to mitigate excessive risk-taking and enhance financial stability. They aim to prevent systemic risks associated with highly leveraged positions. Adherence to these limits is crucial for maintaining market integrity.
Context ∞ The ongoing discussion surrounding leverage ratio limits in the digital asset space addresses the need for investor protection and market stability in volatile environments. Regulators often debate the appropriate thresholds to apply, considering the unique characteristics of crypto markets. Future developments will likely involve dynamic adjustments to these limits as market structures mature and supervisory capabilities advance.