2/ Real-time margining keeps things real but needs a check. Real-time margining is one of defi’s core innovations.  But in a market that moves 24/7, it also creates new risks to manage.  Defi needs infrastructure that lets you sleep without worrying you’re going to wake up to

3/ Enter FCMs.  Traditional markets work on batch margining – your FCM calls, you get a few days to send more money. We’ve all seen that goes horribly wrong.  But in a real-time market, they become the credit buffer, the liquidity shock absorber and the human judgment to smooth

4/ ADL isn’t risk management, it’s a last resort kill switch.  Friday showed what happens without these buffers FCMs provide.  When exchanges froze deposits on Friday, there was nowhere for the pressure to go. Result: ADL kicked in, forcing other participants to take losses.

5/ Even worse, rumors circulated that some large participants were exempted from ADL.  This mechanism is problematic enough – when deployed in ways that aren’t uniform or transparent, it undermines trust in the market.

6/ Exchanges can’t be all the things.  In fact, they shouldn’t be anything other than a neutral venue for trading.  The minute they are providing liquidity or generating revenue from liquidation events, we’ve passed what should be a bright line.

7/ And a bonus lesson from decades in markets: On Friday, liquidity providers did what they should be expected to do, and what mature markets anticipate they’ll do: reduce their size to reflect higher realized volatility and then increase their size when markets normalize. That’s

8/ Stress tests reveal where systems are resilient and where they’re not. The right takeaway from Friday is to review what happened and identify places where together we can strengthen infrastructure and resilience. If DeFi is the future of finance, it needs to meet the same

9/ Read my full take here 👉 https://www.cumberland.io/insi...

@drwconvexity Everyone agrees that crypto exchanges should just be a neutral trading venue, but this is a major departure to their current business model, even in DEXs. Volume doesn’t seem to flock to more transparent venues either, so why should anyone build the fair thing?

@drwconvexity 39B baggage belt

@drwconvexity @evanvar Fr Friday's crash was the ultimate stress test and the market flunked

@drwconvexity learned a lot from this thanks mr wilson

@drwconvexity Tbh. its mainly one CEX that failed. Its nothing new that they lack any best practises from TradFi. Centralized Trading has to move to real trading venues. However, DeFi proved itself. Uniswap processed trades and repo markets accrued no bad debt. Thats the real message imo.

@drwconvexity Great post

@drwconvexity Only used @canton_loop 🔥