Two separate quantities get called leverage. Yours is a choice: how much exposure against how much collateral, and it determines where your liquidation sits.
The system’s is a market condition: how much leveraged exposure exists in aggregate, measured by open interest and characterised by funding. You have no influence over it and it decides the environment your position lives in.
Why low personal leverage is not enough
Trading unlevered spot removes any possibility of being liquidated. It does not remove the consequences of everyone else being liquidated — the forced selling still arrives in the book you are trying to exit into, and the price still goes where the cascade takes it.
So system leverage is a risk to unlevered holders too. It sets how far a given piece of news travels, which is the argument in why crypto volatility clusters: leverage is the amplifier, and its size is not your decision.
Reading the aggregate
Open interest rising steadily while price grinds up is leverage accumulating quietly — more fuel stacked. Funding persistently one-sided says which direction that fuel is leaning. Neither predicts a move; together they describe what a move would do if one started.
The tell that fuel has been consumed is open interest falling sharply during a move, which is leverage being removed permanently rather than repositioned.
How the two interact
Badly, and specifically. High system leverage means larger moves; larger moves mean your own liquidation is reached by a smaller-seeming event. So the appropriate personal leverage is inversely related to system leverage — you should be smaller when everyone else is bigger.
Most participants do the opposite, because high system leverage accompanies strong trends and confidence. That is the whole shape of a cascade: maximum crowd leverage arriving just before the move that clears it.
The usable rule
Size against the environment rather than against your conviction. Conviction has no bearing on how far a forced-selling event travels.