Tiered Margin Requirements

Tiered margin requirements involve adjusting the margin percentage based on the size of a trader's position. Smaller positions are allowed lower margin requirements, while larger, riskier positions are subject to higher requirements.

This is a common practice in institutional finance that has been adopted by many crypto derivative platforms. It forces larger players, who have a greater impact on the market, to provide more collateral, thereby reducing the systemic risk they pose to the protocol.

This structure effectively discourages excessive concentration of risk and encourages a more balanced distribution of positions. It is a proactive approach to managing the "too big to fail" problem within a decentralized environment.

By scaling the margin requirements, the protocol can accommodate a wide range of traders while maintaining a high level of safety for the entire system and its liquidity providers.