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What Are the Risks Associated with Using Cryptocurrency as Collateral for Derivatives?

The primary risks are extreme price volatility, which can quickly erode the collateral's value, and operational risks like security breaches or network issues. Liquidity risk is also a concern, as large amounts of crypto collateral may be difficult to liquidate quickly without significant market impact.

These risks necessitate larger collateral haircuts and robust risk management procedures.

What Are the Risks of Holding Cryptocurrency as Collateral for Traditional Derivatives?
How Do CCPs Manage the Operational Risk of Accepting a Wide Variety of Collateral Assets?
What Is the Risk Associated with High Leverage Commonly Used in Perpetual Swap Trading?
What Is a ‘Liquidation Threshold’ and How Does It Differ from the Initial LTV?