Over-Leveraged Security

Definition ∞ Over-leveraged security describes a financial position where an investor uses excessive borrowed capital to purchase or hold a digital asset, significantly amplifying both potential gains and losses. This situation arises when the value of the collateral backing the loan becomes insufficient relative to the borrowed amount, increasing liquidation risk. It represents a heightened financial exposure that can lead to rapid market instability. Such positions carry substantial risk.
Context ∞ News reports frequently discuss the dangers of over-leveraged security in volatile crypto markets, often preceding or following significant price corrections. The practice is a critical factor in cascading liquidations, which can exacerbate market downturns. Regulators and platforms are increasingly scrutinizing lending protocols to mitigate systemic risks associated with excessive leverage.