SPIRE PROTOCOLCollateral instead of prefunding
Atomic settlement asks both sides to hold the entire asset at the instant of the trade. That is a guarantee bought with idle money.
Spire Protocol grants the right to move volume against collateral instead. Capital works rather than guarding a position.
Position limits
A participant's limit is a function of the collateral it has staked.
limit = (collateralValue - haircut) / initialMarginRateMore collateral, more volume. The limit is checked at the moment an obligation is accepted, so an obligation that would breach it is never novated in the first place. The failure is SPIRE-3001 and it arrives before anything is owed, which is the cheapest moment for it to arrive.
Worked example
A member posts 1,000,000 USDC and trades a tier 1 asset at an 8% initial margin rate.
| Value | |
|---|---|
| Posted | 1,000,000 USDC |
| Haircut on USDC | 0% |
| Collateral value | 1,000,000 |
| Initial margin rate | 8% |
| Position limit | 12,500,000 |
The same member posting 1,000,000 of SPIRE instead, at a 35% haircut, gets a limit of 8,125,000. The token is accepted, and it is accepted at a discount.
What counts as collateral
| Collateral | Haircut | Effective value |
|---|---|---|
| USDC | 0% | 100% |
| Tokenised T-bills, under 90 days | 2% | 98% |
| Tokenised equities, tier 1 | 15% | 85% |
| SPIRE | 35% | 65% |
USDC is the settlement asset and carries no haircut, so a member that wants the simplest possible risk profile posts only USDC and never marks its collateral against a second market during a stress event.
The other three are accepted because refusing them would push members back into holding idle cash, which is the problem this protocol exists to remove. They are accepted at haircuts sized so that a fall in their price does not immediately become a shortfall.
SPIRE is haircut hardest on purpose. A clearing layer that accepts its own token at face value is underwriting itself, and a stress event would hit the collateral and the token at the same moment.
Margin call
free is what is left after margin and the default fund contribution:
free = haircutValue - initialMargin - defaultFundfree going negative is a margin call, not an error. The member has 600 seconds to post more or reduce, and curesAt is an absolute timestamp that survives a window boundary.
During a call the member may reduce but may not add new notional. New fills are refused with SPIRE-3005. If the cure period expires the member is declared in default and the waterfall runs.
The runbook for the ten minutes in between is in Operations.
Concentration
No more than 25% of a member's limit may sit in one asset. A member with a 12,500,000 limit cannot carry more than 3,125,000 in any single name.
The cap exists because the waterfall is sized against a default that can be auctioned. A position large enough to move the price of the asset it is being liquidated into cannot be auctioned at anything close to its mark.
Properties
- Collateral is not lent out. It exists to absorb a default, not to earn a carry.
- Collateral is held per member, not per venue, and it backs that member's positions everywhere it trades.
- A participant that defaults is slashed, in the order described in the default waterfall.
- Withdrawals come out of
freeonly. A withdrawal that would create a margin call is refused withSPIRE-3002rather than executed.
The trade-off, stated plainly
Prefunding removes credit risk by freezing money. Collateral converts credit risk into a sizing problem: how much can this participant move before its collateral stops covering it. That is a question with a numeric answer, which is what makes clearing possible at all.
Every number in that answer is in Parameters.