What Is the Main Difference between a ‘Cash-Settled’ and ‘Physical-Settled’ Option?

In a cash-settled option, when the option is exercised, the difference between the strike price and the current market price is paid in fiat or a stablecoin. No physical delivery of the underlying asset occurs.

In a physical-settled option, the actual underlying asset (e.g. the native token) must be delivered or received upon exercise. DeFi options are often physical-settled for on-chain delivery.