I can appreciate this, but the fund decay actually has nothing to do with leverage.

All "leveraged" ETFs (to the best of my knowledge) are synthetic - they achieve their "leverage" using derivatives, not by borrowing. These derivatives are not free, and like an option, can expire worthless. That's how the value in these ETFs evaporates over time, regardless of how the market performs.

Of course not “regardless” of how the market performs, take a look at UPRO over the last 2/3 yrs. But those are in theory reasonable concerns, however empirically most leveraged funds have performed as promised relative to their benchmarks (with a couple notable exceptions I admit). The entire point of derivatives (as suggested in the name) is that they inherantly bear an underlying relationship to their underlying security.

If you look at UPRO, its daily returns almost exactly track 3x of SPY. There’s no long-term “decay”, unless you are referring to volatility drag. VIX etfs are the notable exception, in that they do suffer from persistant negative carry.