How Does a Delivery versus Payment (DVP) System Mitigate Settlement Risk?
A Delivery Versus Payment (DVP) system ensures that the transfer of the underlying asset (Delivery) occurs only if the corresponding transfer of funds (Payment) also occurs simultaneously. This eliminates the principal risk of a party delivering the asset but not receiving the payment, or vice versa, thereby significantly reducing settlement risk and counterparty exposure.
Glossar
Automated versus Manual Settlement
Automation ⎊ Automated settlement leverages smart contracts and algorithmic protocols to execute final transfers of assets and collateral immediately upon contract expiration or exercise.
Secure Payment Logic
Design ⎊ Secure Payment Logic represents the architectural Design of smart contract functions responsible for asset disbursement, ensuring that the entire operation is atomic, consistent, and isolated from external manipulation.
Virtual Payment Methods
Method ⎊ Virtual payment methods, within the convergence of cryptocurrency, options trading, and financial derivatives, represent a spectrum of transactional conduits distinct from traditional fiat-based systems.
Payment Instrument Choice
Selection ⎊ Payment Instrument Choice refers to the strategic decision by market participants regarding which form of money or asset to use for settling transactions, collateralizing derivatives, or conducting general payments.
Future Payment Discounting
Valuation ⎊ Future payment discounting, within cryptocurrency derivatives, represents the process of determining the present value of anticipated cash flows from a future contract or obligation, acknowledging the time value of money and inherent risks.
Payment Protocol Flaws
Vulnerability ⎊ Payment protocol flaws refer to weaknesses or errors in the design or implementation of a digital payment protocol, including those used for cryptocurrencies, that can be exploited by malicious actors.
Difference Payment Structure
Principle ⎊ The Difference Payment Structure operates on the principle that only the net financial difference between the contract price and the final settlement price is exchanged between the counterparties at maturity.
Payment Receipt Timing
Settlement ⎊ Payment receipt timing refers to the precise moment a transaction is confirmed and irrevocably recorded within a financial system, particularly crucial in the context of cryptocurrency and derivatives.
Gas Fee Payment Structure
Structure ⎊ The Gas Fee Payment Structure, particularly under Ethereum's EIP-1559, is a hybrid model designed to improve the predictability of transaction costs by replacing the simple first-price auction.
Payment Frequency
Frequency ⎊ Payment frequency defines the schedule at which cash flows are exchanged between parties in a financial derivative contract.