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.