Using a Risk-Based Margin Calc

[0xbigz]

rules-based

as of now, protocol-v2 operates with rules-based margining. sum of weighted asset - weighted liabilities.
∑(w_i * a_i) - ∑(w_i * l_i)

this takes no account of offset correlated or even asset/liabilities that share the same oracle price. for instance, depositing SOL and shorting SOL-PERP has same margin constraints as depositing SOL and shorting BTC-PERP, despite lower risk.

for instance in above, settling negative PnL leads to a USDC borrow. A USDC borrow has a liability of weight of 1 while the sol asset weight is .9. So every $1 increase in the oracle price of SOL, the account would lose 0.9 * $1 - 1.0 * $1 = $.10 in free collateral.

risk-based

risk-based, or portfolio margining, extends more margin/capital efficiency based on the risk ever the entire portfolio. Examples of risk-based margining implementations already exist in CeFi, such as @okex [1], and even in DeFi, such as @aave "high efficiency mode" or E-mode [2][3].

proposal

i propose the margin calculation discounts liabilities when they are offset by assets with the same oracle price as a simple 'risk-based' measure.

[1] https://www.okx.com/support/hc/en-us/articles/4411686631309-V-Portfolio-Margin-mode-cross-margin-trading.

[2] https://docs.aave.com/faq/aave-v3-features#high-efficiency-mode-e-mode.

[3] https://governance.aave.com/t/gauntlet-aave-v3-e-mode-methodology/12278.

[0xbigz]

revisiting this again, some notes:

considering adding an asset group specific 'e-mode' that a user sets on their account.

• when a user activates this setting, it ensures the user has a valid set and offsetting set of assets/liabilities (short sol-perp, sol deposit) (short sol, long liquid_staking_sol_token)

during margin check add if statement checks if the user has emode activated then can override the spot market asset/liability weights. might as well have the validate for switching on/off emode in there too.

this way, users explicitly set the group and the group cannot be mixed. adding validation/invariants checks ensure and overriding weights to less strict ones doesnt impact the margin system logic too much