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.
Glossar
Physically Settled
Settlement ⎊ Physically settled derivatives contracts require the actual transfer of the underlying asset from the short position holder to the long position holder at maturity.
Capital Requirements for Market Makers
Requirement ⎊ Capital requirements for market makers represent the minimum financial resources necessary to support continuous quoting activities in derivatives markets.
Standardized Delivery Protocol
Settlement ⎊ A Standardized Delivery Protocol within cryptocurrency options and financial derivatives defines the precise procedures for the final transfer of the underlying asset or cash equivalent upon exercise or expiration.
Providing Liquidity
Action ⎊ Providing Liquidity is the act of depositing capital into a decentralized exchange pool or lending market to facilitate trading and earn associated fees or rewards.
Physically Settled Crypto
Settlement ⎊ Physically settled crypto derivatives represent a class of contracts where the obligation at expiry is fulfilled through the direct delivery of the underlying cryptocurrency asset, rather than a cash settlement.