How Do Cross-Chain Derivatives Utilize Standardized Tokens for Settlement?
Cross-chain derivatives utilize standardized tokens by employing bridge protocols to move the underlying or collateral assets to the chain where the derivative contract is executed. The contract itself is typically settled using a standardized token, such as a stablecoin (ERC-20), that is native or wrapped on the execution chain.
This ensures the settlement is predictable and liquid, regardless of where the underlying asset originated. The standardized nature of the settlement token is key to ensuring universal acceptance and ease of transfer.
Glossar
Bridge Protocols
Interoperability ⎊ Bridge protocols, within cryptocurrency, options trading, and financial derivatives, facilitate the transfer of assets and data between disparate blockchain networks and traditional financial systems.
Standardized Tokens
Derivation ⎊ Standardized Tokens, within cryptocurrency and financial derivatives, represent a formalized approach to representing underlying assets or rights as fungible units suitable for on-chain transactions and smart contract execution.
Cross-Chain
Transfer ⎊ Cross-chain capability refers to the mechanism enabling the atomic movement of digital assets and data between distinct, sovereign blockchain networks.