Collateral Concentration Limits

Collateral Concentration Limits are rules that prevent a user from holding too much of a single asset as collateral. By diversifying the types of assets accepted for margin, a platform reduces its vulnerability to a crash in any one specific coin.

If a trader holds 90% of their collateral in a single volatile altcoin, a sudden price drop could wipe out their entire account. Platforms enforce these limits to encourage healthier risk management practices.

This ensures that the collateral base is robust and less susceptible to the idiosyncratic risk of any individual asset. It is a proactive measure to maintain the overall solvency of the platform's collateral pool.