Does DVP Eliminate All Settlement Risk?
No, DVP does not eliminate all settlement risk. It successfully eliminates principal risk (the risk of losing the entire principal).
However, it does not eliminate replacement cost risk (the risk of having to replace the trade at a less favorable price if the counterparty defaults before settlement) or liquidity risk (the risk of not having enough cash to settle on the due date).
Glossar
DvP Trade Mechanics
Process ⎊ DvP Trade Mechanics define the precise, sequential process governing the execution and settlement of a Delivery versus Payment transaction, ensuring the simultaneous exchange of asset and cash.
Cross-Chain Atomic Settlement
Interoperability ⎊ Cross-Chain Atomic Settlement represents the cryptographic assurance that two distinct digital assets, residing on separate and incompatible blockchain ledgers, can be exchanged without relying on a central trusted third party.
Asset Settlement Cycle
Clearing ⎊ The asset settlement cycle defines the precise timeframe for finalizing a transaction, where the clearing process ensures the transfer of ownership and funds between counterparties.
Stablecoin Role in Dvp
Function ⎊ Stablecoins serve as the critical digital payment leg in Delivery-versus-Payment (DvP) settlement for crypto derivatives, acting as a tokenized representation of fiat currency.
Stablecoin Facilitation of Dvp
Facilitation ⎊ Stablecoin facilitation of DvP refers to the use of stablecoins as the payment leg in a Delivery versus Payment transaction, ensuring the simultaneous exchange of assets and funds.
Distributed Ledger Technology
Architecture ⎊ Distributed Ledger Technology, within cryptocurrency, options trading, and financial derivatives, represents a foundational shift from centralized databases to a decentralized, cryptographically secured record-keeping system.
Dvp for Spot Trades
Mechanism ⎊ Delivery Versus Payment (DvP) for Spot Trades is a settlement mechanism ensuring that the transfer of the underlying cryptocurrency asset occurs only if the corresponding payment, typically in fiat or a stablecoin, is simultaneously made.
Smart Contract Risk Assessment
Vulnerability ⎊ Smart Contract Risk Assessment, within cryptocurrency, options trading, and financial derivatives, centers on identifying weaknesses in code logic and deployment that could lead to economic loss or systemic instability.
Institutional Dvp Adoption
Integration ⎊ Institutional DvP adoption involves integrating digital asset settlement protocols with existing institutional trading infrastructure.
Managing Replacement Costs
Mitigation ⎊ This involves the active deployment of strategies and financial instruments designed to offset the potential negative financial impact arising from adverse price movements on open derivative positions.