296,163 crypto traders have been liquidated in the last 24 hours

Why would you offer more collateral? What’s in it for you?

This isn't unique to crypto. Some traditional discount brokerages also auto-sell without warning when you drop below their margin requirements.

Any leverage exposes you to possible liquidation. That’s what leverage is. You’re essentially borrowing an asset You don’t own to sell.

In traditional finance, the brokerage you are working with may notify you and ask for more leverage. Or to warn you if the risk calculation is about to change. It's pretty flexible.

This is specifically a crypto problem where everything is automatic and decentralized.

These sorts of trading that isn't buy-and-hold is effectively credit with a variable concluding price. Certainly anything involving leverage is, by definition, credit.

Short selling is basically equivalent to put options. Crucially, in both cases, as the price goes up the potential loss increases, theoretically unbounded (!). The loss may be larger than the amount of money originally put down.

Thus, there are two options:

- provide collateral to the broker to indicate that you are still capable of covering the loss. If the trade goes bad, you pay up or lose the collateral. Similar to a mortgage foreclosure.

- have a sufficiently good relationship with the broker that they know you're good for unlimited losses, and are willing to take the risk that you go bankrupt and put that risk on the broker's own balance sheet.

Brokers observe that a trade which has gone sufficiently far out of the money isn't coming back, and therefore prefer to liquidate early rather than get into deep losses.

Leverage is basically the same as margin, which is using stock shares or cryptocurrency (I'll just use "shares" for the remainder of this comment) that you own as collateral for a loan to buy more shares. It's often given as a ratio, like 2X. This means that if you buy $100 worth of shares, you can borrow another $100 worth and own $200 worth.

The catch is that if the value of the asset drops, you still need to be able to cover your loan with the asset. So if you bought 1 share for $100, you can leverage it to buy 1 additional share. But it's important to note that the actual cash value of your account is still only $100.

If the share price drops to $50, then you will likely face liquidation. Why? Because you're still responsible for the $100 loan. If you get liquidated, you're forced to sell your two shares for $50 each, $100 total. But then you have to pay back the loan, so you end up with $0.

The upside, however, is that if the share price went up to $150, you could sell your two shares for $150 each ($300 total), pay back the $100 loan, and end up with $200 net.

> and if there are (or not) any mild-leverage alternatives without liquidation

The only way to do this is to borrow at a lower ratio. ie, $100 of your own cash, then borrow $20 to buy 0.2 shares. The $100 share price would have to drop to ~$17 before liquidation occurs.

For brokers to remain solvent, liquidation must occur if the value of the asset drops below the value of the loan.