Volatility Adjusted Collateral

Volatility Adjusted Collateral refers to the practice of scaling the value of collateral based on the historical or implied volatility of the asset. Assets with higher volatility are discounted more heavily to protect the protocol against rapid price drops.

The margin engine uses these adjusted values to determine the actual margin available to the user. This approach ensures that the protocol is not over-exposed to assets that could lose value quickly.

It is a proactive risk management technique that treats different assets according to their unique risk profiles. By integrating volatility metrics, the engine provides a more accurate and safer assessment of account health.

This is essential for managing a diverse portfolio of crypto assets.