How Does the Lack of a Single Central Exchange for Crypto Spot Prices Impact Futures Settlement?

The decentralized nature of cryptocurrency trading means there is no single, authoritative spot price. This lack of a central price source necessitates the use of a price index for cash settlement.

Crypto derivatives exchanges typically create a composite index by aggregating prices from multiple major spot exchanges. This index is used as the final settlement price, which introduces 'index risk' ▴ the risk that the exchange's calculated index price might deviate from the price a specific trader could have executed a trade at on their preferred spot exchange.