How Do Smart Contracts Enable Atomic Swaps to Eliminate Settlement Risk in Crypto Trades?

Atomic swaps use smart contracts to ensure that two parties can exchange different cryptocurrencies directly without a trusted third party. The contract is programmed so that either both legs of the trade execute simultaneously, or neither does.

This "all or nothing" mechanism inherently enforces DVP and eliminates the time lag where one party is exposed to the counterparty's default, thereby eliminating settlement risk.