How Does Collateral Management via Smart Contracts Improve Transparency for Counterparties?
Smart contracts improve transparency by making the collateral requirements, current collateral levels, and the rules for margin calls publicly verifiable on the shared ledger. Both counterparties can monitor the status of the collateral in real-time without relying on a trusted third party's reporting.
The rules for liquidation or margin adjustments are embedded in the immutable code, providing a clear, transparent, and auditable process for all participants.
Glossar
Transparency
Principle ⎊ Transparency in a public blockchain context means that all transactions, contract code, and network activity are openly recorded and auditable by any participant.
Smart Contracts
Function ⎊ Smart contracts are self-executing agreements with the terms of the agreement directly written into lines of code, residing on a decentralized ledger.
Collateral Management
RiskFunction ⎊ Collateral Management encompasses the systematic oversight, valuation, and maintenance of assets pledged to secure obligations, particularly crucial in leveraged derivatives trading and decentralized finance lending.
Counterparties
Agreement ⎊ In cryptocurrency derivatives and options trading, counterparties represent the parties entering into a contractual arrangement, fundamentally defining the risk exposure and potential rewards for each participant.