Definition ∞ Derivatives market collateral refers to assets pledged by participants in derivatives transactions to cover potential future obligations. This security measure reduces counterparty risk and ensures financial stability within the market. It is a standard practice in both traditional and decentralized finance to secure open positions.
Context ∞ The use of digital assets as derivatives market collateral is a growing area within decentralized finance (DeFi), offering new liquidity avenues but also presenting unique volatility and liquidation risk management challenges. Regulators are examining appropriate risk parameters and capital requirements for such digital collateral to maintain market integrity.
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