On-Chain Margin refers to the collateral required to support leveraged trading positions or derivative contracts that are held and managed directly on a blockchain through smart contracts. This system ensures transparency and censorship resistance for collateral management in decentralized finance.
Mechanism
Users deposit digital assets into a smart contract, which then functions as the margin account. The smart contract monitors the position’s health against predefined liquidation thresholds, automatically adjusting or liquidating positions if margin requirements are not met, without reliance on a centralized intermediary.
Methodology
The strategic benefit of on-chain margin lies in its ability to minimize counterparty risk and enhance financial transparency by making collateral levels and liquidation logic publicly verifiable. This approach supports the development of robust institutional options trading and smart trading systems in crypto, ensuring that risk parameters are enforced programmatically and immutably.
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