How Does a “Delivery versus Payment” (DVP) Mechanism Work in Physical Settlement?
Delivery Versus Payment (DVP) is a settlement process where the transfer of the underlying asset (the delivery) occurs simultaneously with the transfer of the cash payment. This mechanism is designed to eliminate "principal risk," which is the risk that one party delivers the asset but does not receive the payment, or vice-versa.
In crypto, DVP ensures the buyer gets the coins at the exact moment the seller receives the fiat or stablecoin.
Glossar
Payment
Settlement ⎊ Payment within cryptocurrency, options trading, and financial derivatives represents the actual transfer of value, typically digital assets or fiat currency, to fulfill contractual obligations arising from a trade or contract execution.
DvP
Settlement ⎊ DvP, or Delivery versus Payment, within cryptocurrency and financial derivatives signifies the simultaneous exchange of assets, mitigating principal risk inherent in over-the-counter transactions and increasingly, on-chain settlements.
DvP Mechanism
Mechanism ⎊ The Delivery versus Payment (DvP) mechanism, within cryptocurrency derivatives and options trading, represents a crucial risk mitigation strategy.