Margin

Similar to other derivative exchanges, Boros supports both cross margin and isolated margin modes:

• Cross Margin: Enables maximum capital efficiency by sharing collateral across multiple markets within the same collateral zone. A single collateral deposit can back positions across all markets in the zone, allowing unrealized profits in one market to offset potential losses in another.

• Isolated Margin: Constrains collateral to a single market, providing position-level risk isolation. Liquidations in an isolated market only affect that specific position and do not impact other isolated positions or cross-margin positions.

This document covers the essential concepts of Boros margin system. For complete specifications, please refer to the Boros whitepaper.

Position Value and Total Value

Position Value

The position value represents the current unrealized profit or loss of an interest rate swap position:

Position Value = Position Size × Mark Rate × Time to Maturity

Total Value

A user's total value across all positions is calculated as:

Total Value = Account Cash + Σ(Position Values across all markets)

This total value determines the user's available margin for new positions and liquidation risk.

Initial Margin

Initial margin requirements must be satisfied when opening new positions to ensure sufficient collateral backing.

Pre-scaling Initial Margin

The pre-scaling initial margin (PIM) for each component is calculated as:

Pre-scaling IM = |Size| × max(|Rate|, Rate Threshold)

Where Rate Threshold is a market parameter that sets the minimum rate used for margin calculations.

Combined Initial Margin

The system combines initial margin requirements from:

1. Active Position: Existing standalone position.
2. Long Orders: Unfilled buy orders
3. Short Orders: Unfilled sell orders

PIM for active position is using with mark rate. PIM for orders are calculated using order rates.

The calculation evaluates worst-case margin requirements for both long and short sides:

Long-side Pre-scaling IM:

• If current position is SHORT and total long order sizes ≤ |short position size|: Long PIM = 0 (orders only reduce position)
• Otherwise: Long PIM = Sum of long orders' PIM + position PIM (adjusted for direction)

Short-side Pre-scaling IM:

• If current position is LONG and total short order sizes ≤ |long position size|: Short PIM = 0 (orders only reduce position)
• Otherwise: Short PIM = Sum of short orders' PIM + position PIM (adjusted for direction)

Final Pre-scaling IM = max(Long-side PIM, Short-side PIM)

This ensures sufficient margin for the worst-case scenario where all orders on one side get filled.

Examples

Note: For simplicity, these examples ignore the rate threshold parameter and use the actual rates directly.

Example 1: Long position with additional long orders

• Current position: LONG 1000 units at mark rate 5%
• Open orders: LONG 500 units at 4.5%
• Position PIM = 1000 × 5% = 50
• Long orders PIM = 500 × 4.5% = 22.5
• Long-side PIM = 50 + 22.5 = 72.5 (position and orders add up)
• Short-side PIM = 0 (no short orders)
• Final PIM = 72.5

Example 2: Long position with small short orders (not enough to flip position)

• Current position: LONG 1000 units at mark rate 5%
• Open orders: SHORT 600 units at 5.5%
• Position PIM = 1000 × 5% = 50
• Short orders PIM = 600 × 5.5% = 33
• Long-side PIM = 50 (no long orders)
• Short-side PIM = 0 (600 < 1000, orders only reduce position)
• Final PIM = 50

Example 3: Long position with large short orders (can flip position)

• Current position: LONG 1000 units at mark rate 5%
• Open orders: SHORT 2500 units at 6%
• Position PIM = 1000 × 5% = 50
• Short orders PIM = 2500 × 6% = 150
• Long-side PIM = 50 (no long orders)
• Short-side PIM = 150 - 50 = 100
• Final PIM = 100 (Short-side PIM is larger)

Final Initial Margin

The actual initial margin requirement scales the pre-scaling amount:

Initial Margin = Pre-scaling IM × IM Factor × Personal Factor × max(Time to Maturity, Time Threshold)

Opening Position Requirements

To open new positions:

Total Initial Margin (all markets) ≤ User's Total Value

Margin Check for Closing Orders

When initial margin requirements are not met, users can still place orders under "closing-only" conditions:

• Position Size Reduction: Orders must reduce absolute position size (no position flipping)
• No Opposite Side Orders: Cannot place orders on the opposite side of existing position
• Rate Bounds: Closing rate must be within reasonable bounds from mark rate

These relaxed conditions allow users to reduce risk even when under-collateralized.

Maintenance Margin and Liquidation

Maintenance Margin

Maintenance margin represents the minimum collateral required to keep positions open:

Maintenance Margin = |Position Size| × max(|Mark Rate|, Rate Threshold) × MM Factor × max(Time to Maturity, Time Threshold)

Health Ratio

A user's health ratio indicates their margin safety:

Health Ratio = Total Value / Total Maintenance Margin

• Health Ratio > 1: Position is healthy
• Health Ratio ≤ 1: Position is eligible for liquidation

Liquidation Process

When a user's total value drops below maintenance margin requirements, their position becomes eligible for liquidation. Liquidation is a permissioned action carried out by Pendle to maintain protocol solvency.

Liquidation Mechanics:

1. Position is closed (partially or fully) at current mark rate
2. Liquidator takes over the closed position
3. Liquidation incentive is transferred from liquidated user to liquidator

Liquidation Incentive:

Liquidation Incentive = min(Incentive Factor, Health Ratio) × Change in Maintenance Margin

Where the Incentive Factor is calculated as:

Incentive Factor = Base Factor + Slope Factor × (1 - Health Ratio)

This structure provides larger incentives as positions become more distressed, encouraging timely liquidation.

Forced Deleverage

When insufficient liquidity exists for normal liquidation and a user's health ratio continues declining to 0.7, the system performs forced deleverage as a last resort.

Deleverage Process:

1. Identifies accounts with opposite-side positions (typically highest leverage)
2. Forces a swap between distressed account and counterparty at mark rate
3. Total value across accounts remains unchanged
4. Maintenance margin requirements decrease, restoring account health

Important Notes:

• Forced deleverage is an emergency mechanism to protect protocol solvency
• This action is not expected to occur frequently under normal market conditions
• Priority targets are high-leverage positions on the opposite side

Additional Restrictions

Hard Open Interest Cap

Boros implements a hard cap on total open interest to limit system-wide risk:

Total Open Interest ≤ Hard OI Cap

When the system approaches this limit, "Closing only" mode may be activated for risk management.

Closing Only Mode

Markets can enter closing-only mode during high-risk conditions. In this mode:

• Only orders that reduce position size are allowed
• New position opening is prohibited
• Market makers may be whitelisted to continue providing liquidity