Definition ∞ Derivatives settlement is the process of concluding a derivatives contract, which involves exchanging assets or cash flows between parties. This can occur either through physical delivery of the underlying asset or through a cash payment representing the difference in value. In digital asset markets, this often involves the transfer of cryptocurrencies or stablecoins upon contract expiration. Efficient settlement is crucial for reducing counterparty risk and ensuring market stability.
Context ∞ The expansion of derivatives markets for digital assets has placed increased scrutiny on the mechanisms for derivatives settlement. Discussions frequently focus on the efficiency, security, and regulatory oversight of these processes, especially given the volatile nature of cryptocurrencies. Innovations in smart contract technology aim to automate and secure settlement, reducing manual intervention and potential disputes.
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