How Does a Protocol Use Tokenized Assets to Meet Margin Requirements?
A decentralized derivatives protocol allows users to deposit tokenized assets (like ETH, stablecoins, or even LP tokens) into a smart contract as collateral to meet initial and maintenance margin requirements. The contract constantly monitors the value of these tokenized assets against the position's liability, automatically enforcing the required collateralization ratio on-chain.
Glossar
Maintenance Margin
Collateral ⎊ Within cryptocurrency derivatives and options trading, the maintenance margin represents the minimum equity a trader must maintain in their account to cover potential losses.
Decentralized Derivatives Protocol
Protocol ⎊ A decentralized derivatives protocol is a set of smart contracts deployed on a blockchain that facilitates the creation, trading, and settlement of financial derivatives, such as perpetual futures or options, without the need for a centralized intermediary.
Required Collateralization
Standard ⎊ The minimum amount of collateral, usually expressed as a percentage of the notional value, that a trader must post to open or maintain a leveraged derivative position, ensuring the counterparty is protected from immediate adverse price swings.
Tokenized Assets
Asset ⎊ Tokenized assets represent the fractionalization and digitization of ownership rights in underlying assets ⎊ ranging from real estate and commodities to financial instruments like options and derivatives ⎊ using blockchain technology.