What Is the Risk of “Settlement Failure” and How Does Blockchain Netting Mitigate It?

Settlement failure occurs when one party to a trade fails to deliver the asset or cash as agreed upon the settlement date. Blockchain netting, combined with atomic settlement via smart contracts, virtually eliminates this risk.

Since the smart contract controls both legs of the trade and only executes if all conditions are met simultaneously, there is no time window for one party to default after the other has performed. The netting further reduces the number of transactions that need to settle.