Reduced Pre-Funding

Definition ∞ Reduced Pre-Funding refers to a financial operational model where the requirement to deposit capital in advance of a transaction or settlement is lessened or eliminated. This approach aims to free up working capital, improve liquidity, and reduce the counterparty risk associated with holding funds at an intermediary. It streamlines financial flows and can lower the overall cost of transactions. This model benefits market participants by optimizing capital usage.
Context ∞ In the digital asset space, Reduced Pre-Funding is a key advantage offered by certain blockchain-based settlement systems and decentralized exchanges, often reported as an efficiency gain. Traditional financial markets typically demand significant pre-funding, which ties up capital. The ability of distributed ledger technology to enable near real-time gross settlement can significantly alter pre-funding requirements, thereby enhancing market efficiency.