Can a Decentralized Exchange (DEX) Offer Physically-Settled Derivatives? ⎊ Path

Can a Decentralized Exchange (DEX) Offer Physically-Settled Derivatives?

Yes, a DEX can theoretically offer physically-settled derivatives, but the mechanism is different and typically relies on smart contracts. Settlement is achieved via an atomic swap or direct token transfer governed by the contract's code, which automatically moves the underlying asset upon expiration.

The custody risk is shifted from a centralized third party to the security and immutability of the smart contract itself.

What Is the Primary Risk Associated with a Smart Contract for Settlement?

Why Do Most Crypto Futures Contracts Use Cash Settlement?

How Do Decentralized Exchanges (DEXs) Factor into Traditional Index Selection Criteria?

How Does an “Oracle” Function in a DEX Derivatives Platform?

What Is the Key Difference between Cash-Settled and Physically-Settled Futures Contracts?

How Is the Concept of “Custody Risk” Different for a DEX Compared to a CEX in the Context of an Index?

What Is a “Smart Contract” and How Does It Facilitate Derivatives?

Does the Custody Solution for the Underlying Asset Affect the Risk of a Physically-Settled Contract?

Glossar

Smart Contract

Code ⎊ The contract is fundamentally self-executing code deployed on a distributed ledger, embodying the terms of the agreement in an immutable format.

Decentralized Exchange (DEX)

Platform ⎊ A Decentralized Exchange (DEX) is a cryptocurrency trading platform that operates without a central intermediary, allowing users to trade digital assets directly from their non-custodial wallets.