Definition ∞ Derivatives collateral refers to the assets pledged by traders to secure their positions in cryptocurrency derivatives contracts. This collateral ensures that obligations can be met even if market movements result in losses. Common forms of collateral include stablecoins or the underlying digital asset itself. Sufficient collateral is critical for maintaining market stability and preventing cascading liquidations.
Context ∞ The type and quantity of derivatives collateral currently held on exchanges is a key indicator of market risk and participant confidence. Regulators are increasingly scrutinizing collateral requirements to mitigate systemic risks within the digital asset derivatives space. Monitoring these assets provides insight into the solvency of market participants.
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