Unified Margin Accounts (UMAs)
Last updated
Last updated
Spicenet features a universal trading account that simplifies access to all trading products on Spicenet. As traders ourselves, we first-hand experienced the problem of fragmented accounts across platforms and products, with little to no accessibility between them. For example, a trader's funds would often be deployed across multiple vehicles and products, such as money markets, futures and spots. If a trader wanted to use their money market position as collateral to open a futures position elsewhere, it is simply not possible with today's infrastructure.
We introduce the concept of a Unified Margin Account, the account type on Spicenet underpinning all user activities. Meaning that when a user is accessing multiple products on Spicenet, they do so with a single, unified margin account. How does this matter? For one, the user can construct highly complex strategies that stretch a single dollar of collateral much further. Because funds are managed in a single account, liquid positions in one product can be used as collateral to open positions in another product. Think using a lending position as collateral to trade a future. Second, fund re-allocation and management becomes much simpler and fluid, allowing traders to quickly balance their portfolio as the market moves.
A UMA is one of the two types of accounts that users can trade with on Spicenet. It allows exposure to multiple products with the same margin account, boosting capital efficiency and promoting easier management of capital, allowing traders to construct highly complex portfolios while being able to balance them effectively as the market moves. But, how does a UMA work?
When a user bridges into Spicenet, they are by default onboarded to a UMA, and therefore will be trading on the "Global Market"(will be discussed in further documentation). A UMA provides access to the broad variety of products and instruments on Spicenet, so a new user will not have to create new accounts to access new products and instruments as they explore the platform. Moreover, constructing complex portfolios by reusing liquid positions as collateral is not a manual process. Instead, every UMA is underpinned by Spicenet's flagship risk engine, that calculates the liquidity factor of every position, and determines whether they can be used as liquid collateral, and if so, to what extent. For example, the risk engine determines how much of a lending position on $TIA can be used as collateral to trade other products, by factoring in the 24h STD of $TIA, the current LTVs on the $TIA lending market, and so on.
However, a user may choose to bridge(not in a literal sense) away from a UMA to trade in a "Local Account". A local account is a polar opposite of a UMA, for traders wanting more control over how their liquid positions are being used. A local account is an isolated margin account, while the UMA is a cross margin account. Users choosing to trade using local accounts benefit from increased predictability of their collateral, and more control over their liquid positions. Local accounts are designed specifically to work with "Local Markets", where trading and settlement happens on Peer-to-Peer settlement pools rather than global orderbooks, enhancing trade privacy and price discovery(liquidation of a whale doesn't impact your position, because you both are on different settlement pools). We discuss more about local markets in further documentation.
A UMA evaluates the total value of liquid positions that add towards collateral by selectively determining the liquidity, accessibility and usability factors of every position existing in the portfolio, and determines whether they can contribute to collateral, and if so, to what extent. For example, we would want a larger portion of a $BTC lending position to contribute to collateral, compared to a $TIA lending position, by just accounting for the price stability and liquidity of $BTC in global crypto markets vs $TIA. However, this also means liquidation of a single position can cause cascading liquidations across the portfolio. Although UMAs implement partial liquidations by default, utilization of liquid positions towards collateral means that if these liquid positions are at risk, the whole portfolio would suffer a margin call, and potentially liquidation if further collateral is not deposited into the account to cover the requirements. The risk engine takes a very aggressive approach to determining the weightage of each liquid position, i.e the extent to which each liquid position can add to collateral, in order to minimise any large shocks to the portfolio. Hence, considering the potential cascading shocks to a UMA-based portfolio, users are expected to apply aggressive risk management policies in allocating capital to different UMA products, and may consider using local accounts for highly volatile and relatively less-liquid asset positions.
