How Do Cross-Margining Systems Handle a De-Peg Event?
Cross-margining systems use a single pool of collateral across multiple positions (e.g. futures and options) to manage margin requirements efficiently. A stablecoin de-peg event would instantly devalue this entire pool of collateral.
This sudden drop in the total margin value across all linked positions increases the risk of simultaneous margin calls and liquidations across the entire portfolio, potentially leading to systemic issues.
Glossar
Simultaneous Margin Calls
Trigger ⎊ Simultaneous margin calls are triggered by a rapid, high-magnitude price movement in a core cryptocurrency asset, causing a large number of leveraged positions to breach their maintenance margin thresholds concurrently.
Linked Positions
Position ⎊ Linked positions, within cryptocurrency derivatives and options trading, represent a strategic arrangement where the performance of multiple contracts or assets are interconnected, often designed to manage risk or exploit anticipated market movements.
Futures Contracts
Mechanism ⎊ Futures contracts, within cryptocurrency and broader financial derivatives, represent standardized agreements obligating parties to transact an asset at a predetermined price on a specified future date; these instruments facilitate price discovery and risk transfer, extending beyond traditional commodities to encompass digital assets and complex financial indices.
Stablecoin De-Peg Event
Trigger ⎊ A stablecoin de-peg event signifies the loss of a stablecoin’s intended 1:1 parity with its reference asset, typically the US dollar, representing a breakdown in the mechanisms designed to maintain price stability.
Margin Requirements
Definition ⎊ Margin requirements refer to the minimum amount of capital an investor must deposit and maintain with a broker or exchange to open and sustain a leveraged position in derivatives trading.