What Is the Primary Function of a Smart Contract in a Financial Derivative Transaction?

The primary function is to automate the execution and settlement of the derivative agreement without the need for a third-party intermediary. The smart contract holds the collateral, defines the terms, and automatically triggers the payoff based on external price feeds (oracles).

This increases efficiency, reduces counterparty risk, and lowers transaction costs. It ensures trustless and transparent execution upon predefined conditions.