Account-Level Solvency

Account-level solvency refers to the state where a user's total collateral value exceeds their total debt obligations at all times. In a cross-margined account, this is calculated by aggregating all assets and liabilities.

If this condition is violated, the account is technically insolvent, and the protocol must take action to protect itself. Maintaining account-level solvency is the primary goal of margin management systems.

It requires constant monitoring and rapid response to market changes. If an account becomes insolvent, the protocol may suffer losses if the liquidation does not cover the full debt.

Protocols use various mechanisms, such as insurance funds or socialized losses, to handle these situations. The complexity of calculating solvency in real-time across many different assets and positions is a major technical hurdle.

It requires robust data feeds and high-performance computing. Ensuring solvency is the foundation of trust in any decentralized lending or derivative protocol.

It is the core metric for both users and the protocol's risk managers.