In Derivatives, How Does Immutability Secure the Settlement Process?
Immutability ensures that the pre-defined settlement logic ⎊ the rules for calculating the payoff and transferring assets ⎊ cannot be tampered with once the contract is active. For example, in a perpetual swap, the funding rate calculation remains fixed.
This guarantees that all parties know exactly how and when the final transaction will occur, eliminating counterparty risk and ensuring transparent, automatic execution.
Glossar
Eliminating Counterparty Risk
Trust Minimization ⎊ Eliminating Counterparty Risk is achieved in decentralized derivatives by replacing bilateral trust agreements with collateralized, self-executing smart contract logic that enforces trade terms irrespective of the involved parties' behavior or solvency.
Funding Rate Calculation
Formula ⎊ Periodic payments between long and short positions ensure that the perpetual swap price remains closely aligned with the underlying spot index.
Secure
Framework ⎊ Within cryptocurrency, options trading, and financial derivatives, a secure framework prioritizes the integrity and resilience of underlying systems against adversarial attacks and operational failures.
Immutability
Provenance ⎊ Immutability within cryptocurrency, options, and derivatives signifies the unalterable record of transaction history and contract terms, crucial for establishing trust and mitigating counterparty risk.