@r358974s

Does leverage multiplicatively increase liquidation risk? Yes, leverage increases liquidation risk in a more-than-linear, or multiplicative, fashion. This is because it compounds risks. A 2x leveraged position is not twice as likely to be liquidated; it is vulnerable to a smaller price move (a 33% drop instead of a 50% drop for a 3x position) and its existence can contribute to the conditions that cause that drop. In a crisis, the forced selling from a cluster of liquidations itself drives down the collateral price, triggering further liquidations in a positive feedback loop. Therefore, the relationship between leverage and systemic liquidation risk is exponential, not linear. Each incremental increase in leverage across the system disproportionately amplifies the potential for a catastrophic cascade.

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