Cross-Margin Pool

In a cross-margin pool, also known as a shared collateral pool, user deposits are not siloed to individual accounts but are instead commingled into a collective reserve. This pooled collateral acts as a unified backstop for all open leveraged positions or loans taken from the protocol. This architecture is a core component of perpetual futures DEXs like dYdX (v3) and GMX, as well as lending protocols, enabling higher capital efficiency than isolated margin models. The primary advantage is that a user's unused collateral can help secure other users' positions, reducing the overall capital required for the same level of trading activity.

The mechanism relies on a global risk engine that continuously assesses the health of the entire pool. When a leveraged position is opened, it draws against the shared pool, not a user's specific deposit. Liquidation occurs when the pool's total value, relative to its total liabilities (open positions), falls below a predefined threshold, triggering a process to close underwater positions. This contrasts with isolated margin, where liquidation risk is contained to a single user's collateral. Key risks include contagion, where one large, failing position can impact all pool participants by depleting the shared collateral.

From a technical perspective, cross-margin pools utilize sophisticated smart contracts to manage accounting, price oracles for asset valuation, and automated liquidation bots. Protocols often implement a tiered risk system or vaults for different asset classes to segment risk. For example, a pool might contain only stablecoins for lower-risk lending, while a separate pool holds volatile assets like ETH for perpetual swaps. This design prioritizes systemic efficiency and liquidity depth over user-specific risk isolation, making it suitable for high-volume, professional trading environments where maximizing leverage from available capital is paramount.

A cross-margin pool is a shared collateral pool used in decentralized finance (DeFi) lending and derivatives protocols. Unlike an isolated margin account, where collateral is siloed to a single position, a cross-margin pool aggregates a user's deposited assets into a single, unified collateral balance. This pooled collateral is then used to secure and margin all of the user's open positions—such as loans, perpetual futures, or options—simultaneously. This architecture allows for netting of profits and losses across positions, which can increase capital efficiency by reducing the total collateral required.

The core mechanism relies on a risk engine that continuously calculates the health factor or margin ratio of the entire pool. This is a measure of the pool's total collateral value against its total debt and potential liquidation liabilities. If the value of the pooled collateral falls below a protocol-defined threshold due to market movements, the entire pool becomes eligible for liquidation. Liquidators can then repay a portion of the debt in exchange for the underpriced collateral, restoring the pool's health. This creates a system of shared risk across all positions within the pool.

Key advantages of a cross-margin pool include increased capital efficiency, as unused margin from one position can automatically cover the requirements of another, and simplified management of a complex portfolio. However, the primary risk is cross-contamination: a significant loss on one leveraged position can deplete the shared collateral, potentially triggering the liquidation of all other healthy positions within the same pool. This contrasts with isolated margin, where losses are contained to a specific position.

Prominent implementations of cross-margin pools are found in protocols like dYdX (v3) for perpetual swaps and various decentralized options platforms. These systems often require sophisticated oracle feeds for accurate price data and robust smart contract logic to manage the complex interactions of collateral allocation, interest accrual, and liquidation logic across multiple asset types and market conditions.

In a cross-margin system, a trader's collateral is pooled to support multiple open positions simultaneously, unlike isolated margin where each position has dedicated collateral. The system continuously monitors the Health Factor or Margin Ratio, which is calculated as the total value of the pooled collateral divided by the total maintenance margin requirement for all open positions. When market movements cause losses, this ratio decreases. A liquidation event is triggered automatically when the ratio falls below 1.0 (or 100%), indicating the pooled collateral is insufficient to cover potential losses, making the account undercollateralized.

Upon triggering, the liquidation mechanism aims to repay the protocol's debt by force-closing the trader's positions, typically starting with the most risky or largest ones. This is often executed via a liquidation auction or a direct sale to liquidators—third-party bots or users incentivized by a liquidation penalty or discount. The liquidator purchases the collateral at a discount, repays the outstanding debt to the protocol, and keeps the difference as profit. This process ensures the solvency of the lending pool or decentralized exchange by preventing bad debt from accumulating.

Key parameters governing this mechanism include the liquidation threshold (the collateral value ratio at which liquidation begins), the liquidation penalty (the fee charged to the trader, often 5-15%), and the close factor (the maximum percentage of a position that can be liquidated in a single transaction). These are set by protocol governance and are critical for managing systemic risk. For example, a lower liquidation threshold provides a larger safety cushion for the protocol but increases the frequency of liquidations for traders.

The mechanism's design involves significant trade-offs. A slow or inefficient process can leave the protocol undercollateralized during volatile markets, while overly aggressive liquidations can cause cascading liquidation spirals and market instability. Modern protocols often implement features like gradual liquidations, soft liquidations that only close enough to restore health, and insurance funds to cover any remaining shortfalls, thereby creating a more robust and trader-friendly system.

From a trader's perspective, managing liquidation risk in cross-margin requires monitoring the aggregate health of all positions, not individual trades. Tools like liquidation price calculators are essential, as the price at which liquidation occurs is a dynamic function of all open positions and the shared collateral pool. This centralized risk, while capital efficient, means a single adverse move can jeopardize the entire portfolio, unlike the compartmentalized risk of isolated margin accounts.