Trade Settlement Protocol

A trade settlement protocol defines the rules and processes for transferring ownership of assets after a trade is executed. In traditional finance, this often involves clearinghouses and multi-day cycles.

In cryptocurrency, settlement can be near-instantaneous on-chain or handled internally by exchange databases. The protocol must ensure that the buyer receives the asset and the seller receives the payment simultaneously.

Failures in settlement protocols can lead to systemic risk and counterparty defaults. High-frequency traders must account for the settlement latency of the specific venue they are using to manage their capital efficiently.