Cross-margining

One of Reya’s fundamental innovation is a system for full cross-margining of positions, made possible by the extensive liquidation engine and its innovative waterfall structure. Reya Network’s margin system has a holistic view of a traders portfolio. This means when setting margin requirements, it takes into account that certain positions in a portfolio can win when others lose, in effect reducing the aggregate losses that a portfolio as a whole can suffer. As a result, a trader would need to deposit less capital as margin for those aggregate losses. Cross-margining is the system of accounting for these synergies in the portfolio and consequent margin savings.

In particular, cross-margining enables very capital efficient relative value (long-short) trades. While it is completely fair to trade on whether a given token will go up or down, whether a given project is winner or a loser, more often than not, true trading opportunities are in betting on whether two projects will converge or diverge relative to one another. By longing one and shorting the other, a trader stands to gain precisely with those movements, irrespective of whether the market as whole goes up or down.

Using two-year data up until December 31, 2023 and a preliminary margin model, Reya’s cross-margining system would have resulted in >350% more capital efficient ETH-BTC spread trading.

Margin efficiencies are the cornerstone for capital efficiency and are essential for liquidity providers, as they will accumulate large portfolios with many offsetting pieces, and by recognizing them, cross margining frees up LP’s resources to provide further liquidity