Binary Settlement

Binary settlement refers to the mechanism by which all-or-nothing options are resolved at the expiration date. Unlike physically settled derivatives where the underlying asset is delivered, binary settlement is typically cash-settled based on the final state of the option.

If the condition specified in the smart contract is satisfied, the contract automatically transfers the fixed payout to the holder's wallet. If the condition is not satisfied, the contract executes a function that effectively burns or nullifies the position.

This process relies heavily on decentralized oracles to determine the final price of the underlying asset at the exact moment of expiration. Because the settlement is binary, there is no ambiguity regarding the final value of the position, which simplifies the accounting and clearing process for decentralized protocols.

However, it also introduces a single point of failure if the oracle feed is manipulated or fails to update correctly at the settlement time.