How Do Crypto Exchange Wallets Simplify or Complicate Physical Settlement?
Exchange wallets can simplify physical settlement by providing an integrated system where the exchange handles the on-chain transfer internally between the buyer's and seller's exchange accounts, reducing external network fees and transfer risk. However, they complicate it by requiring both parties to trust the exchange's custody and internal transfer mechanisms.
If a trader wishes to take delivery to a private, non-exchange wallet, the external transfer process, including gas fees and network congestion, reintroduces complexity.
Glossar
Gas Fees
Mechanism ⎊ Gas fees represent the computational cost required to execute transactions on a blockchain network, functioning as a deterrent against denial-of-service attacks and incentivizing miners or validators to process transactions.
Wallets
Custody ⎊ Cryptocurrency wallets, in the context of derivatives trading, primarily function as secure repositories for digital assets, facilitating access and control while adhering to stringent regulatory frameworks.
Physical Settlement
Delivery ⎊ The concept of physical settlement, particularly within cryptocurrency derivatives and options, signifies the actual transfer of the underlying asset ⎊ be it a digital token or a commodity ⎊ rather than a cash-based offset.