What Is the Role of an ‘Index Price’ in the Settlement of Crypto Derivatives?

The index price is a fair market value reference calculated by aggregating the price of the underlying cryptocurrency from a basket of major, reputable spot exchanges. Its role in derivatives settlement is to serve as the final, reliable price for determining the profit or loss of a contract upon expiration.

Using an index price prevents any single exchange's temporary price anomaly or manipulation from unfairly affecting the contract's settlement value.