Why Might a CCP Apply a 100% Haircut to a Specific Type of Cryptocurrency Collateral? ⎊ Path

Why Might a CCP Apply a 100% Haircut to a Specific Type of Cryptocurrency Collateral?

A 100% haircut means the asset is deemed to have zero value as collateral for margin purposes. This would be applied to a cryptocurrency that is highly illiquid, extremely volatile, or poses significant operational/custody risks.

It is a risk management decision to completely exclude the asset from the eligible collateral pool due to its unreliability in a default scenario.

What Is an Algorithmic Stablecoin and Why Are They Risky?

What Are the Potential Consequences of Setting a TWAP Time Period That Is Too Short or Too Long?

What Is the Challenge of Marking-to-Market Illiquid Altcoin Collateral?

What Is the Specific Date for the Deemed Sale under the Mark-to-Market Rule?

What Is a ‘Margin Call’ in the Context of an LTV Breach?

What Is the Concept of “Ring-Fencing” in the Context of Cross-Margining?

Why Is VWAP a Less Reliable Benchmark in Extremely Low-Volume or Volatile Crypto Markets?

What Risks Does a Market Maker Face When Their Win Rate Is Too High?

Glossar

Haircut

Discount ⎊ A Haircut is a specific form of collateral discounting, representing the percentage reduction applied to the market value of an asset when it is posted as collateral for a loan or derivatives position.

Eligible Collateral Pool

Composition ⎊ Eligible Collateral Pool structures represent the underlying assets accepted by a counterparty to mitigate credit exposure within derivative contracts, particularly prevalent in cryptocurrency options and perpetual swaps.