How Does the Settlement Process for a Derivatives Trade Differ between a CEX and a DEX? ▴ Learn

How Does the Settlement Process for a Derivatives Trade Differ between a CEX and a DEX?

In a Centralized Exchange (CEX), the settlement process is internal, off-chain, and handled by the exchange's clearing house or risk management system. Funds and collateral are moved on the exchange's internal ledger.

In a Decentralized Exchange (DEX), settlement is executed on-chain via smart contracts. The smart contract automatically transfers collateral and profit/loss between parties upon expiration or exercise, using the blockchain's transparent and immutable ledger.

The DEX process is trustless but vulnerable to MEV.

How Do MEV-boost Auctions Attempt to Democratize Access to MEV?

How Do Decentralized Exchanges (DEXs) Differ from Centralized Exchanges in Their Vulnerability to State-Sponsored Attacks?

How Is MEV Extraction Managed in Proof-of-Stake (PoS) Consensus Mechanisms?

What Mechanism on a DEX Makes It Vulnerable to Price Manipulation via Sandwich Attacks?