Collateral Management and its Effect on Capital Efficiency

Seed CX
Seed CX
Oct 30, 2019 · 3 min read

By Adam Leaman, Head of Client Services at Seed CX

Since the mainstream explosion of digital assets in 2017, there has been rapid growth in the number of exchanges and trading platforms that have entered the space. Traders have welcomed this competition amongst these trading venues, as they have led to the compression of trading fees, among other benefits to traders. With these benefits, however, comes the burden of collateral management and its effect on capital efficiency. Traders, as well as asset managers are forced to allocate inventory of digital and fiat assets on each platform in order to trade, causing capital to be highly fragmented across the marketplace.

More bang for your buck (or coin)

We recognize that one of the key frictions for traders is capital inefficiency, which we have focused on mitigating through:

Connecting to multiple trading venues.

Zero Hash’s infrastructure facilitates settlements and the management of collateral. Zero Hash is a fully regulated entity with the following licenses:

  • NYDFS Bitlicense
  • FinCEN MSB
  • Money Transmitter in 36 states and FX Dealer

When deposits are held with Zero Hash, not only do traders have trading power to access Seed Digital Commodities Market (SCXM), but can also be connected to multiple trading platforms. Zero Hash allows market participants to custody all assets at one venue and easily be able to transfer funds across platforms alleviating the headaches of treasury management. Some of the platforms that we have publicly announced include Blockfllls, AiX, and Digital Asset Redemption.

For more information about connectivity and onboarded trading platforms please see the FAQ section of our website.

Allowing for leveraged margin trading

Zero Hash is extremely flexible and customizable and can accommodate many settlement cycles. Zero Hash can also be set to settle instantly, in batch, notionally, or at set time intervals. Thus, Zero Hash is one settlement platform that can cater to many diverse settlement requirements.

For example, Seed Digital Commodities Market (SCXM) supports leveraged trading through margined contracts. Therefore, if a trader wishes to sell a BTC/USD contract at $10,000, but only has USD in inventory (no BTC), traders will still be able to open short positions given that the margin for the contract has been met. This then requires a time for delivery. Zero Hash has been configured to allow for T+1 settlement for SCXM. , Margin rates for Seed CX’s current contracts can be found here:

Cross Asset collateralization

Not only does Zero Hash support many diverse settlement configurations, it also provides for unique collateralization models. The following example highlights how Seed CX uses this functionality to offer increased capital efficiency for trading on SCXM. SCXM offers leveraged margin trading and margin can be collateralized in assets aside from USD. If a trader wishes to buy a BTC/USD contract at $10,000, but only has BTC in inventory (no USD), a 50% haircut would require the trader to put up 2 BTC ($20,000) as collateral and would allow the purchase of 1 BTC. Highlighted by this example, Zero Hash is flexible enough to calculate trading power and haircut amounts in terms of USD adjusted values.

Assets available as collateral and associated haircuts can be found here:

We strive to solve market inefficiencies while setting the standard in digital assets market structure through connecting market participants with various venues whether it be exchanges, OTC desks, lending facilities, etc. While providing the infrastructure, market participants benefit and gain capital efficiencies that cannot be realized elsewhere in the current fragmented cryptocurrency ecosystem.

Seed CX

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Seed CX

A licensed digital asset exchange built for the needs of institutional investors.

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