Andre Cronje comments on the new trading mechanism: The theory of closing positions when the market reverses is actually difficult to implement

In response to a new trading mechanism emerging in the crypto industry, Andre Cronje posted on the X platform that there is a new infrastructure that is currently gaining a lot of attention and is being integrated into a protocol that he believes is very low-risk, but according to his (possibly incorrect) understanding, this new protocol is very high-risk. He discussed in detail the components of the mechanism, including the characteristics of perpetual contracts, such as trading without holding the trading asset, the need for buyers and sellers to pay a "funding rate", etc., and the mechanism of using stETH as margin/collateral, trying to achieve "neutrality" by opening relative positions, while obtaining the benefits of stETH returns and funding rates. Cronje said he is not a trader and admitted that this is not his area of ​​expertise, but he tried to compare these financial instruments with the most basic financial concepts he knows - collateral and debt, and pointed out that the position will eventually need to be closed or face the risk of liquidation. He raised a question that the theory that "positions will be closed when the market reverses" is a bit like the so-called "buy when BTC goes up and sell when it goes down", which sounds reasonable but is almost impossible to achieve in practice. So while everything is going great right now (because the market is positive and short funding rates are positive (because everyone is happy to be long), eventually things will change, funding will go negative, margin/collateral will get liquidated, and you will have an unbacked asset.