Repo, or a repurchase agreement, is a short-term collateralized borrowing arrangement where one party sells securities to another with an agreement to repurchase them at a higher price on a specified future date. In crypto finance, this involves digital assets serving as collateral for short-term liquidity, enabling institutions to manage cash positions or gain exposure to specific tokens without outright ownership.
Mechanism
The mechanism involves two legs: an initial sale of securities (digital assets) for cash, and a forward repurchase of those same securities at an agreed-upon higher price. The difference between the sale and repurchase prices represents the interest paid on the cash loan. This structure effectively functions as a collateralized loan, where the securities temporarily change ownership but are committed for return.
Methodology
The methodology focuses on short-term liquidity management, collateral optimization, and interest rate arbitrage. Participants use repos to borrow or lend cash against high-quality, liquid collateral, efficiently managing their balance sheets and funding costs. This systematic approach provides a low-risk, flexible funding mechanism for institutional players, offering capital efficiency and secured short-term investment opportunities within regulated or decentralized crypto lending markets.
Tri-party integration for repo is a bulk collateralization process for funding, while for securities lending it is a precision workflow for sourcing specific assets.
The CDM is a standardized digital protocol that transforms collateral management from a fragmented, high-risk process into an optimized, liquid system.
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