Define ‘Atomic Settlement’ and Its Relation to Counterparty Risk Reduction.
Atomic settlement means that a transaction is executed entirely and instantaneously, or it fails completely, ensuring no partial states. In derivatives, this guarantees that the asset exchange and collateral release happen simultaneously.
This instant finality eliminates the time window where a counterparty could default after one side of the trade is completed. It is key to achieving trustless, non-custodial exchange.
Glossar
Counterparty Risk
Exposure ⎊ Counterparty risk represents the potential loss incurred when a trading partner defaults on their contractual obligations.
Instant Finality
Settlement ⎊ Instant Finality, within decentralized systems, denotes the irreversible confirmation of a transaction, eliminating the probabilistic finality inherent in many consensus mechanisms.
Atomic Settlement
Execution ⎊ The simultaneous exchange of assets occurs only when all predefined conditions of a smart contract are met.
Atomic Swaps
Exchange ⎊ A protocol allowing for the direct, peer-to-peer exchange of one cryptocurrency for another across disparate blockchain networks without the need for a centralized intermediary or custodian.