Physical Delivery Protocol

A physical delivery protocol is the mechanism by which a derivative contract results in the actual transfer of the underlying asset between the buyer and seller at expiration. In the blockchain context, this requires the tokenization of the underlying asset and the use of smart contracts to manage the transfer of ownership.

This protocol is more complex than cash settlement because it requires verification of asset existence and legal or technical ownership transfer. It is used in specialized scenarios where the delivery of the asset itself is the primary objective, such as tokenized real estate or commodities.

Ensuring the security and reliability of this transfer is critical for maintaining trust in physical-delivery-based derivatives.