Why Is a Robust Oracle System Critical for Managing Negative Equity during a Depeg?
A robust oracle system is essential because it provides the reliable, real-time price feed (the “mark price” or “index price”) used to calculate margin, P&L, and liquidation levels. During a stablecoin depeg, the oracle must accurately reflect the depegged market value of the settlement asset, not just its $1 peg.
If the oracle is slow or inaccurate, the exchange’s risk engine will calculate margin calls and liquidations based on a faulty price, leading to negative equity or incorrect liquidations, exacerbating the crisis.
Glossar
Oracle System
Data ⎊ In cryptocurrency, options trading, and financial derivatives, an Oracle System represents a crucial bridge connecting off-chain information ⎊ real-world data, market prices, or external events ⎊ to on-chain smart contracts.
Managing Negative Equity
Mitigation ⎊ Managing negative equity, particularly within cryptocurrency and derivatives, necessitates proactive strategies to curtail potential losses stemming from adverse price movements.
Negative Equity
Impairment ⎊ Negative equity in cryptocurrency, options, and derivatives arises when the marked-to-market value of an asset or position falls below the initial investment or the outstanding liability, creating an unrealized loss.