Market Stress Transmission

Market stress transmission is the process by which a crisis in one segment of the financial market propagates to other, seemingly unrelated segments. In crypto-derivatives, this often occurs through shared participants, shared collateral, or shared infrastructure.

When a major player faces a margin call, they may be forced to sell other assets, causing prices to drop across the board. This transmission is a key element of systemic risk and highlights the importance of monitoring the interconnectedness of the market.

It requires a holistic approach to risk management that looks beyond individual protocols to the entire ecosystem.