What Are the Capital Efficiency Implications of Pre-Funded Margin?

Pre-funded margin can be less capital efficient than traditional margin systems because a larger amount of capital is locked up and unavailable for other investments. In traditional finance, margin is often only called when needed.

However, the pre-funded model trades this efficiency for significantly reduced counterparty risk and instant settlement finality. Protocols are exploring ways to improve efficiency, such as using interest-bearing collateral or allowing margin to be used in other protocols.