Modular Cross Margin

Every position is in isolated mode but can request collateral when there is not enough margin inside the position.
In practice, it only needs to be updated near liquidation so it's gaz efficient.

The any-asset cross margin landscape has long been the domain of institutions with strong credit ratings, such as banks and major financial entities.
This credit rating requirement has limited the field for OTC bilateral derivatives, as each counterparty needs a substantial credit score.
The challenge is further exacerbated by the difficulty in determining a counterparty's default status.
Conventional approaches to mitigate this, such as daily settlements aimed at flagging potential defaults, also amplify risks associated with credit lines.
However, blockchain technology is addressing some of these concerns by providing transparency that allows for the monitoring of a large number of positions.
This transparency eliminates the need for blind trust in a counterparty, as it's possible to ascertain the amount of collateral held by each.

The significance of any-asset cross margin lies in its capital efficiency.
By enabling interest rate derivatives to earn on collateral that backs your portfolio, it offers efficiency gains, such as the ability to create an inflation-protected stablecoin.

Consider an array of bilateral positions between (A,B), (A,C), and (A,D) that use the same collateral.
The challenge lies in fairly distributing the loss among the participants if (A,B) defaults 200% more than the deposited collateral.
The solution is not straightforward, as each algorithm has exploitable solutions.
Allocating based on the largest loss allows an attacker to divide their holdings into many smaller positions.
Allocation by reputation enables an attacker to build up their reputation until the opportune moment to default.
Allocating based on the order in which positions were opened doesn't account for the risk of a normally stable asset becoming highly volatile, an event that occurs frequently.

PIO addresses these challenges head-on. In this innovative system, all contracts share the same collateral and can settle their unrealized Profit and Loss (uPnL), Initial Margin (IM), and Default Fee (DF) as they see fit.
In a liquidation scenario, the last party to have settled will bear any loss.
However, each party has the ability to monitor the settlement statuses of others and act just before the collateral is exhausted. Moreover, IM acts as a protective buffer, allowing a defaulting party time to restore their collateral.
If a party misses a settlement, they run the risk of being the last to claim from the remaining collateral.
IM and DF play crucial roles here — IM as a safety net and DF as a deterrent against defaulting.

A computing oracle performs all settlements by running PnL calculations and optimizing portfolio IM.
This ensures deterministic settlements and adds an additional layer of trustworthiness to the system.

Last updated 6 months ago

Every position is in isolated mode but can request collateral when there is not enough margin inside the position.
In practice, it only needs to be updated near liquidation so it's gaz efficient.

The any-asset cross margin landscape has long been the domain of institutions with strong credit ratings, such as banks and major financial entities.
This credit rating requirement has limited the field for OTC bilateral derivatives, as each counterparty needs a substantial credit score.
The challenge is further exacerbated by the difficulty in determining a counterparty's default status.
Conventional approaches to mitigate this, such as daily settlements aimed at flagging potential defaults, also amplify risks associated with credit lines.
However, blockchain technology is addressing some of these concerns by providing transparency that allows for the monitoring of a large number of positions.
This transparency eliminates the need for blind trust in a counterparty, as it's possible to ascertain the amount of collateral held by each.

The significance of any-asset cross margin lies in its capital efficiency.
By enabling interest rate derivatives to earn on collateral that backs your portfolio, it offers efficiency gains, such as the ability to create an inflation-protected stablecoin.

Consider an array of bilateral positions between (A,B), (A,C), and (A,D) that use the same collateral.
The challenge lies in fairly distributing the loss among the participants if (A,B) defaults 200% more than the deposited collateral.
The solution is not straightforward, as each algorithm has exploitable solutions.
Allocating based on the largest loss allows an attacker to divide their holdings into many smaller positions.
Allocation by reputation enables an attacker to build up their reputation until the opportune moment to default.
Allocating based on the order in which positions were opened doesn't account for the risk of a normally stable asset becoming highly volatile, an event that occurs frequently.

PIO addresses these challenges head-on. In this innovative system, all contracts share the same collateral and can settle their unrealized Profit and Loss (uPnL), Initial Margin (IM), and Default Fee (DF) as they see fit.
In a liquidation scenario, the last party to have settled will bear any loss.
However, each party has the ability to monitor the settlement statuses of others and act just before the collateral is exhausted. Moreover, IM acts as a protective buffer, allowing a defaulting party time to restore their collateral.
If a party misses a settlement, they run the risk of being the last to claim from the remaining collateral.
IM and DF play crucial roles here — IM as a safety net and DF as a deterrent against defaulting.

A computing oracle performs all settlements by running PnL calculations and optimizing portfolio IM.
This ensures deterministic settlements and adds an additional layer of trustworthiness to the system.