A tri-party arrangement in the crypto financial sector is a contractual agreement involving three distinct entities: typically a borrower, a lender, and an independent third-party agent, often a custodian or collateral manager. This structure is designed to manage collateralized transactions securely.
Mechanism
Under this arrangement, the third-party agent holds and administers the collateral assets, which may be digital assets, on behalf of both the borrower and the lender, ensuring neutrality and adherence to agreed-upon terms. This agent monitors collateral values, manages margin calls, and facilitates asset transfers upon maturity or default, mitigating direct counterparty risk between borrower and lender.
Methodology
The strategic advantage for institutional crypto lending and borrowing lies in enhanced security, operational efficiency, and reduced bilateral counterparty risk. By externalizing collateral management to a specialized and neutral third party, these arrangements support greater trust and scalability in institutional digital asset markets, particularly for large-volume over-the-counter transactions.
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