Margin and collateral

Overview

Butter.xyz is a cross-margin exchange. This page describes the collateral and margin system.

Collateral Assets

Currently ETH is the only asset accepted as collateral.

Account value

Account value is the sum of collateral and unrealized PnL.

Opening positions

A more conservative calculation of account value is used when opening or increasing positions. Positive unrealized PnL cannot be used to open new positions. In other words, for opening and increasing positions, the account value is calculated as

$\text{collateral} +min(0,\ \text{unrealized PnL})$

We sometimes refer to this as the initial account value.

Margin

Initial margin

The initial margin for a position is calculated as $\text{position size} * \text{mark price} * \text{initial margin fraction}$. The initial margin fraction is tiered based on position size; larger position sizes require more margin.

Initial margin for the account is the sum of the initial margins for each position.

Maintenance margin

Maintenance margin is always 60% of the initial margin.

IMF table

The following table shows the initial margin fractions for each position tier.

Market	Position Size	IMF
BAYC-PERP	0	0.1
	0.05	0.15
	0.15	0.2
	0.5	0.33
AZUKI-PERP	0	0.1
	0.5	0.15
	1	0.2
	3	0.33
	6	0.5
CAPTAINZ-PERP	0	0.1
	1	0.2
	3	0.33
	6	0.5
YGPZ-PERP	0	0.1
	10	0.2
	20	0.33
MEME-PERP	0	0.33

Example

A trader has a position of 0.15 BAYC-PERP and a position of 0.3 AZUKI-PERP. Assume that the current price of BAYC-PERP is 25 ETH and the current price of AZUKI-PERP is 4 ETH.

BAYC-PERP: At a position size of 0.15 BAYC-PERP, the IMF is 0.2.

AZUKI-PERP: At a position size of 0.3 AZUKI-PERP, the IMF is 0.1.

$\text{Initial margin (IM)} =IM_{BAYC} + IM_{AZUKI} = 0.15 * 25 * 0.2 + 0.3 * 4 * 0.1 = 0.87\ \text{ETH} \newline \text{Maintenance margin} = 0.6 * \text{IM} = 0.6 * 0.87 = 0.522\ \text{ETH}$

If the trader's account value falls below 0.522 ETH, his position will be liquidated. Read the next section for details about Butter's liquidation engine.