Cross-network collateral
Cross-network collateral is collateral supplied on one blockchain network that backs a loan taken on another. On SODAX, lending and borrowing with cross-network collateral is one position across networks, offered by apps that call the SODAX API.
What it refers to
Cross-network collateral is collateral supplied on one blockchain network that backs a loan taken on another (often searched as cross chain collateral). A user can supply an asset on one network and borrow a different asset on another network against it, without moving the collateral there themselves first.
It is the collateral side of cross-network lending: lending and borrowing that span networks instead of staying inside one, where cross-network means across blockchain networks.
Why this concept exists
Lending markets have mostly lived inside single networks. Collateral supplied on one network could only back loans on that same network, so a user whose assets sat on one network and whose need was on another had to move assets, open separate positions and track each one.
Capital ends up split across networks, and every new network fragments a money market's pools further. Surplus on one network sits next to demand on another with nothing to connect them.
What this changes for system design
If collateral and the loan sit on different networks, the system has to keep one view of the position across them: the value of the collateral, the size of the loan, and the limits that keep the loan properly backed. Because networks confirm on their own schedules, changes to collateral and new borrows have to be coordinated asynchronously rather than assumed to happen at the same moment.
On SODAX, the Money Market keeps lending and borrowing with cross-network collateral as one position across networks. Apps offer it inside their own products by calling the SODAX API, and SODAX never takes custody.
Related terms
- Cross-network lending: the wider lending concept
- Money Market: where the position is kept
- SODAX API: how apps offer it
- Liquidity fragmentation: the problem it addresses
- Asynchronous reality: why coordination takes time