Clear DefinitionsCollateral Management
1 min read
Pronunciation
[kah-lat-er-uhl man-ij-muhnt]
Analogy
Like a bank’s operations team overseeing pledged assets, margin calls, and liquidation auctions.
Definition
Processes and systems for tracking, optimizing, and liquidating collateral assets used in lending, derivatives, and cross‑chain protocols.
Key Points Intro
Collateral management ensures protocols maintain adequate backing and minimize counterparty risk.
Key Points
Monitoring: Continuous health factor and margin ratio checks.
Rebalancing: Adjust collateral allocations across assets or chains.
Liquidation: Automated auctions or buy‑ins when thresholds breached.
Reporting: Real‑time dashboards for exposure and risk metrics.
Example
A DeFi platform triggers partial liquidation when a borrower’s collateral value falls below 110% of borrowed amount, using auction smart contracts to sell collateral.
Technical Deep Dive
Systems ingest oracle price feeds, compute per-position LTV ratios, and enqueue under‑collateralized positions. Liquidator bots call `liquidate()` on smart contracts, bidding in Dutch auctions. Portfolio margin engines optimize across multiple collateral types using variance-covariance models.
Security Warning
Oracle delays or manipulation can lead to cascading liquidations; diversify feeds and include circuit breakers.
Caveat
High correlation among collateral assets can magnify systemic risk during market stress.
Collateral Management - Related Articles
No related articles for this term.