How Does the Concept of ‘Netting’ in Financial Derivatives Resemble the Function of a Merkle Tree?

Netting is a method used in financial markets, especially derivatives, to consolidate multiple financial obligations between two or more parties into a single, net obligation. This reduces the total exposure and risk.

A Merkle Tree similarly consolidates a large number of transaction hashes into a single, compact Merkle Root. Both processes achieve efficiency and risk reduction by aggregating numerous individual data points or obligations into a single, verifiable summary.