Research Summary
Deribit, a cryptocurrency derivatives trading platform, is introducing changes to its portfolio margin model. The new model will offer two versions: Segregated Portfolio Margin and Cross Collateral. The changes aim to provide more accurate, risk-aligned margin requirements, enabling greater trading flexibility and efficiency.
Key Takeaways
Introduction of Two Portfolio Margin Models
- Segregated Portfolio Margin and Cross Collateral: Deribit is launching two versions of its portfolio margin model. The Segregated Portfolio Margin model will be launched first, followed by the Cross Collateral model in April 2024. The main difference between the two models is the treatment of currencies on a segregated basis or in aggregate.
Key Changes to the Portfolio Margin Model
- Balance Reflective: The new model recognizes the unique risks of unbalanced positions by margining these higher, while offering reduced margin requirements for well-balanced positions.
- Improved Initial Margin Accuracy: The new model calculates initial margins more precisely, ensuring long options are not over-collateralized. This allows traders to utilize their capital more effectively.
- Comprehensive Market Move Analysis: The new model adopts a broader view of potential market movements, adjusting margin requirements only when the projected loss is substantial.
Removal of Limit Caps and Contingencies
- Removal of Short Vega Limit Cap: The new model will not impose a short vega limit cap, as it takes into account larger market moves and charges additional margin accordingly.
- Removal of Option and Futures Contingency: The new model will not have an additional option contingency due to the enlarged scenario range in the extended risk matrix. It also replaces future contingency with a delta and roll shock-based method, adopting a more nuanced, risk-sensitive approach to futures margining.
Upcoming Enhancements
- Collateral Offset and Multi Currency Cross-Collateral Capabilities: Deribit’s short-term roadmap includes the introduction of collateral offset for USDC-settled altcoin options when holding the underlying coin, and the launch of full multi currency cross-collateral capabilities in April 2024.
Actionable Insights
- Consider the New Portfolio Margin Models: Traders should consider the new portfolio margin models introduced by Deribit. The Segregated Portfolio Margin and Cross Collateral models offer different treatments of currencies, which could impact trading strategies.
- Assess the Impact of Improved Initial Margin Accuracy: Traders should assess the impact of the improved initial margin accuracy on their trading. The new model’s more precise calculations could allow for more effective capital utilization.
- Understand the Implications of the Removal of Limit Caps and Contingencies: Traders should understand the implications of the removal of the short vega limit cap and option and futures contingencies. These changes could affect risk management strategies.
- Stay Informed About Upcoming Enhancements: Traders should stay informed about Deribit’s upcoming enhancements, including the introduction of collateral offset for USDC-settled altcoin options and the launch of full multi currency cross-collateral capabilities.
