Certain less liquid cryptocurrencies indeed pose serious risks in their trading environments. The most terrifying is the funding rate mechanism—some projects even set the rate at around 1%, and it is settled hourly. What does this mean?

For example, with 10x leverage short positions, theoretically, your principal could be completely wiped out by the funding fees in just ten hours—assuming no losses on the position. In other words, even if the market stays flat, you are continuously losing money.

This extreme setup forces short positions into a dangerous situation. Entering a trade in the morning with a 10x leverage could lead to two outcomes: either the position is liquidated immediately due to the leverage, or you must achieve a tenfold profit within a very short window to exit profitably. There is no middle ground—the funding rate gradually erodes all your buffer space.

This is not a technical issue but a risk inherent in market design. Traders must check the historical levels of funding rates before trading. Abnormal rates on small-cap coins often signal a liquidity trap.