What Happens If a Seller in a Physically-Settled Contract Does Not Hold the Underlying Crypto?
If a seller does not hold the underlying crypto upon settlement, they are in default of their obligation. The clearing house will typically intervene and force the seller to acquire the asset on the open market at the current price and deliver it, or the clearing house will source the asset and impose a significant financial penalty on the seller to cover the cost and administrative overhead.
This is a serious event that is highly discouraged by margin requirements.
