How Do Smart Contracts Specifically Automate the Settlement of Financial Derivatives?

Smart contracts automate settlement by embedding the terms of the derivative agreement directly into code. Upon meeting pre-defined conditions, such as a price target or expiration date verified by an oracle, the contract automatically executes the payout.

This removes the need for manual clearing houses or settlement agents, ensuring trustless and instantaneous transfer of assets. The code acts as the escrow agent and the final arbiter.