Cross Margin Borrowing

You’ve surely heard of isolated margin multi-collateral systems. They support borrowing against multiple types of collateral, in isolation. For instance, using such a system, one is able to mint DAI against wstETH, and also against wBTC, with two independent collateralized debt positions (CDPs). One is, however, unable to mint DAI against both wstETH and wBTC with a single CDP. The latter constitutes the definition of a multi-collateral cross margin system.

Why does it matter?

For one, isolated margin borrowing prohibits hedging, a technique where one borrows against a set of uncorrelated assets with the sole intent of reducing the likelihood of getting liquidated — when done correctly, an asset going down could result in another asset in the same CDP to increase in value, keeping one’s Loan-to-Value (LTV) ratio constant, and the debt position healthy and thus, protected from liquidation.

Strictly speaking, cross margin borrowing also results in a better user experience as it minimises cognitive burden since you are tracking the health of fewer debt positions.

Nero is such a system.

Cross-margin borrowing allows an account to borrow against multiple assets at once, allowing its users to carefully construct hedged debt positions, or simply access leverage against their portfolio with a single CDP. The credit line can be denominated in USD (CASH!) like in the previous image, or any other asset with an on-chain oracle, such as Truflation’s CPI, the S&P GSCI Precious Metals Index, among others.