Does Settlement Risk Increase or Decrease with the Number of Exchanges Used in the Calculation?
Settlement risk generally decreases as the number of reputable exchanges included in the calculation increases. Using multiple exchanges diversifies the price data, making the final index price less susceptible to manipulation or localized outages on any single platform.
This broad-based calculation provides a more robust and reliable settlement price, reducing the risk of an unrepresentative final value.
Glossar
Settlement Risk Increase
Risk ⎊ Settlement risk increase refers to the heightened probability that a trade, particularly a crypto derivative contract, will fail to settle successfully due to factors like counterparty default, operational failure, or prolonged on-chain finality delays.
Number of Exchanges Used
Metric ⎊ The number of exchanges used is a critical metric in the construction of a reliable cryptocurrency index, directly influencing the breadth and robustness of the underlying price discovery mechanism.
Settlement Price
Price ⎊ The settlement price, within cryptocurrency derivatives, options trading, and broader financial derivatives contexts, represents the final agreed-upon value at which a contract expires or is otherwise terminated.