DEFI: WHAT IS MULTI-COLLATERAL?

he winning mix? – Perpetual Protocol wants to offer a DEX (decentralized exchange) where users of the platform can trade perpetual contracts in a decentralized way. The v2 of the protocol will offer a new feature: multi-collateral . The following lines aim to clarify the notions of collateral and multi-collateral in decentralized finance .

https://www.binance.me/en/activity/referral-entry?fromActivityPage=true&v=3&ref=LIMIT_PZAN7N2G

DEFI AND MULTI-COLLATERAL PROTOCOLS: TOWARDS THE END OF THE REIGN OF TETHER OR USD COIN?

https://getmyebook.net/2021/11/15/how-to-defi-advanced/

Traders who wish to benefit from the offers of cryptocurrency exchanges in terms of derivatives or margin transactions, generally must deposit a guarantee – a collateral – in order to be able to use the effects of leverage .

What is the point of using leverage when trading an asset? A trader who has a capital of €200 can double the position he opens if he applies a leverage effect x2 – times 2 to his bet . Leverage thus considerably increases their gains – but also their possible losses .

The guarantees required by cryptocurrency exchanges to be able to use these levers generally correspond to stablecoins such as Tether (USDT) and USD Coin (USDC).

However, accepting only one type of collateral has drawbacks for traders. The latter may simply not have access to these services requiring the deposit of a single guarantee, if he does not own the asset concerned .

https://accounts.binance.me/en/register?ref=E62QGMZ6

MULTI-COLLATERAL MAKES IT POSSIBLE NOT TO BE DEPENDENT ON A CRYPTOCURRENCY

Multi-collateral is the use of more than one digital asset as collateral . It thus makes it possible to totally or partially eliminate this friction.

By accepting several cryptocurrencies as collateral, a DeFi project also avoids being dependent on a single cryptocurrency – an important point in terms of risk management .

Multi-collateral is also a way to manage risks relating to the variation in value of collateral that is not stablecoin, when traders use leverage.

The value of a single collateral deposited in order to be able to trade crypto derivatives, must indeed remain above a certain level called maintenance margin , when a trader opens a leveraged position.

Otherwise, if the value of the collateral falls below this threshold, the position risks being liquidated, and the trader may then lose his collateral . This issue arises if the trader is using volatile unique collateral – which is therefore not a stablecoin .

By depositing more than one collateral whose prices are not strongly positively correlated , the trader can thus cover a possible collapse in the price of one asset, by another.

While some centralized exchanges already offer multi-collateral, few DeFi protocols offer this feature today.

Perpetual Protocol thus wants to promote the use of multi-collateral in decentralized finance, by adding the functionality to v2 of the protocol. DeFi is full of interesting concepts and tools but with obscure terminologies. Beginners will benefit from watching this video to better understand certain key concepts in the sector .

https://getmyebook.net/2021/11/15/how-to-defi-beginner-2nd-edition/
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