Cryptocurrency trading platform Gemini has announced that it is now possible to use XRP, Shiba Inu (SHIB), Dogecoin (DOGE), Solana (SOL) and Bitcoin Cash (BCH) as cross collateral.
The leading trading platform, which is run by the Winklevoss twins, debuted cross-collateral for derivatives trading in early 2024. Initially, users were only able to use Bitcoin (BTC) as collateral for trading derivatives.
How does cross margin work?
Users who trade derivatives have to deposit collateral in order to be able to open a position and maintain it. The collateral is meant to ensure that users will be able to cover potential losses.
With cross collateral, multiple digital assets can be used as collateral instead of just stablecoins of the likes of USDT. In this way, traders can put their idle coins to work.
The user's margin asset value then gets calculated by the platform. This is the total amount that one can use to maintain trades.
For instance, if one holds 1,000 DOGE (worth $226), 1 SOL (worth $183) and 10 XRP (worth $31), the collateral pool would be roughly $440. This amount of crypto can be used for supporting leveraged derivatives positions.
Liquidation risks
If one's trade goes south, the platform will liquidate the collateral. Users could thus lose all of their collateralized crypto assets.
It is also worth noting that the value of such tokens as XRP and SHIB can drop at a very rapid pace during major sell-offs, which increases risks. On July 24, for instance, the XRP price collapsed by roughly 10%.
Hence, it is generally recommended to diversify one's collateral when engaging in margin trading while also opting for lower leverage.
Vladislav Sopov
U.Today Editorial Team