Why Is Operational Risk Higher for Physically-Settled Contracts?

Operational risk is higher due to the complex logistics involved in the secure and timely transfer of the physical asset. This includes managing multiple systems, ensuring correct wallet addresses, coordinating with custodians, and adhering to strict delivery schedules.

A single error in any step, such as a typo in a crypto address, can lead to the permanent loss of funds, a risk that is entirely absent in a simple cash transfer.