The definitions, precisely
The advance rate is the percentage of an asset's market value that a counterparty will credit you against margin. The haircut is the percentage it will not. They sum to 100:
Nothing about that is difficult. The difficulty is directional: a *high* advance rate is generous, and a *high* haircut is punitive. So a table sorted descending means "best first" under one heading and "worst first" under the other, and a number quietly displayed under the wrong label reverses the meaning of the entire column.
| Asset | Advance rate | Haircut | Reads as |
|---|---|---|---|
| USDC | 99.0% | 1.0% | Near cash |
| BTC | 85.0% | 15.0% | Good collateral |
| ETH | 82.0% | 18.0% | Good collateral |
| Mid-cap alt | 50.0% | 50.0% | Barely collateral |
Three things the single number does not tell you
- Published rates are usually entry tier. Venues that tier by size credit a large holding progressively less, so the published figure is the best case and a concentrated position will not receive it.
- The rate you receive and the rate you grant are different. An intermediary accepts collateral from clients at one haircut and posts it to venues at another. That spread is a real position, and it can be negative without anyone deciding it should be.
- A haircut is not a liquidity assessment. It says what the counterparty will lend against the asset, not whether you could sell it inside your horizon — see the point about mobilisation and execution, which the haircut says nothing about.
Wrong-way collateral
The failure a haircut table cannot show you is correlation. Collateral is meant to be worth something when you need it, which is precisely when the exposure it secures has gone against you. Collateral that falls in the same conditions — a venue's own token posted against exposure to that venue, or an asset whose price is driven by the same factor as the position — is worth materially less than its haircut suggests, and the haircut is not the place that adjustment belongs.
A practical rule
Show both, always, and label them explicitly. It costs one column and removes an entire category of misreading. When a desk asks "what is the haircut on ETH" and the answer on screen is 82, somebody is about to make a decision with the number inverted — and it will not be discovered until the collateral is called.