Settlement in Crypto: Finalizing Digital Asset Transfers

Settlement is the process during which the user executes limit or market orders on DEX, based on the order book.

What is settlement?

Settlement is the process during which the user executes limit or market orders on the DEX based order book. A trade order is linked to a crypto wallet, and when orders are processed, funds or assets are transferred to that wallet pending completion of the trade. Completion of these trades must occur during the settlement process, and users need permission to add assets processed from trade orders back into the crypto wallet.

Proper UX and UI are needed to facilitate the trade order settlement process, especially for traders who execute multiple orders in a short period of time. This ensures smooth and seamless trading, while maximizing the funds that are transferred back and available for subsequent trade orders for users at any given time.

Although unlike financial institutions or stock trading in TradFi, settlement in DEXs and DeFi requires no third-party intermediaries and is automated via code and smart contracts. Various mechanisms can be used to settle orders, often through AMMs, aggregators, order books, or combinations thereof.

Other associated fees charged to users for settlement often include transaction fees for opening and closing limit or market orders, swap fees when using aggregators, or liquidity provider fees when using AMMs. While these are additional fees, they are often insignificant compared to intermediary fees in TradFi, and are very affordable and fast for blockchain with high transaction speeds and low fees, such as Solana and Avalanche, allowing users to transact from small to large amounts for any amount using flexible strategies.

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