What Are the Logistical Challenges of Physical Settlement for Highly Volatile Assets like Cryptocurrencies?
Logistical challenges include the secure transfer and custody of the underlying crypto assets, which involves managing private keys and wallet security. The high volatility means the value of the asset being transferred can change rapidly, increasing settlement risk.
Additionally, the process can be slow and expensive due to network transaction fees and confirmation times.
Glossar
Network Transaction Fees
Cost ⎊ Network transaction fees represent a quantifiable expense incurred when executing operations on a blockchain, directly impacting capital efficiency and derivative pricing.
Highly Volatile Assets
Exposure ⎊ Highly volatile assets, within cryptocurrency, options, and derivatives, represent instruments exhibiting pronounced price fluctuations over short durations, demanding sophisticated risk quantification.
Physical Settlement
Delivery ⎊ The concept of physical settlement, within the context of cryptocurrency derivatives and financial options, signifies the actual transfer of the underlying asset ⎊ be it cryptocurrency, tokens, or fiat currency ⎊ rather than a cash-based settlement.
Logistical Challenges
Settlement ⎊ Cryptocurrency derivatives trading introduces settlement challenges distinct from traditional finance, primarily due to the asynchronous nature of blockchain networks and the potential for network congestion impacting timely finality of transactions.