What Is the Main Challenge in Providing Liquidity for Physically Settled Crypto Derivatives?

Yes, some derivative contracts, particularly certain options or futures on commodities or specific cryptocurrencies, may offer the choice between physical delivery or cash settlement at the discretion of the contract holder or as defined by the exchange rules. However, in the crypto space, most major futures and perpetual swaps are standardized to be either exclusively cash-settled or exclusively physically-settled for clarity and efficiency.