Crypto derivatives platform Deribit is launching a new external custody solution designed to assist with faster collateral transfers and reduce motorcar-deleveraging risks in tumultuous markets.

On May xiv, the Panama-based exchange appear its total integration of the new solution, which was developed by London-based digital asset infrastructure provider Clearloop.

Deribit is catering the new solution to professional traders, claiming that such improvements in the crypto derivatives market structure will drive crypto adoption amid institutional investors.

How does Clearloop'southward custody solution work and what are the implications for traders?

The custody solution is designed to remove the need for nugget managers to motion their crypto from secure common cold storage into hot wallets on exchanges in order to merchandise.

Every bit well as introducing perceived security risks, transferring collateral between wallets and exchanges can incur delays of up to one hour, depending on the time needed for confirmation on a given blockchain network. Delays can further be compounded due to withdrawal times after the trade is settled.

Instead of this, Clearloop is offering a solution for off-commutation settlement betwixt parties. This works past Clearloop intermediating trades — something it says removes self-custody risks — and providing asset managers with a segregated and insured custody solution.

For whatsoever position submitted past a trader, ClearLoop first ensures that both the client and the exchange have plenty avails allocated to cover it before it is opened, and so instantly settles between parties once the trade has been closed.

By making the transfer of customer collateral faster, Clearloop states that traders will exist improve protected against the risks of auto-deleveraging and other downsides associated with market inefficiencies. It points to the market mayhem this March:

"On-chain transaction costs increased upward to five times, and expect fourth dimension for rapid confirmation was approx. 20 minutes. In fast-moving markets, traders are unable to add together or move their margin fast enough to meet margin calls or take advantage of arbitrage opportunities. This limits their power to trade, exaggerates cost move, and can pb to significant trading losses."

By enabling faster reaction times, traders will ostensibly be able to execute significantly higher volumes per transaction, as well every bit avoid limitations on the value of the crypto that can be stored in hot wallets, which is typically enforced by exchanges to mitigate security and counterparty risks.

The company stresses that with its solution, assets never exit the custodian environment and that all off-substitution deposits and settlements are closed within milliseconds.

Auto-deleveraging risks in the crypto derivatives marketplace

As recently reported, some traders on Binance take recently claimed that their winning short trades were unfairly cut brusque due to the platform's auto-deleveraging arrangement.

Platforms such as Binance and BitMEX have created insurance funds whose chief purpose is to prevent the automobile-deleveraging of successful traders' positions to foreclose the defalcation of positions that go liquidated. There has been a recent controversy surrounding BitMEX's utilize — or lack thereof —  of its fund during a mass liquidation event on its platform in March.