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Settlement mechanism Meaning

A settlement mechanism is the specific set of rules and technical processes used to finalize a transaction. It defines how the "Transfer of Title" happens and how the system ensures that the buyer has the funds and the seller has the asset.

This can be a "Netting" system (traditional banks), an "Automated Market Maker" (DeFi), or a "Central Counterparty" (Stock exchanges).The "Golden Rule" of a settlement mechanism is DvP (Delivery versus Payment). This ensures that the asset is only delivered if the payment is confirmed.

In a traditional system, this requires a trusted third party to hold both the money and the asset in "Escrow." In a blockchain system, the "Code" acts as the escrow. This transition from "Institutional Trust" to "Algorithmic Trust" is the fundamental shift offered by digital assets.Different assets require different mechanisms.

For example, "Physical Assets" (like real estate) require a "Legal Settlement Mechanism" where a government registry is updated. "Digital-native Assets" (like Bitcoin) use a "Cryptographic Settlement Mechanism" where the blockchain is the only registry that matters.

As the world "Tokenizes" real-world assets, we are seeing a "Hybridization" of these mechanisms, where a blockchain transaction triggers a legal update in a government database automatically.

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Important Disclaimer:

Finery Markets BVI Limited (“Finery Markets”) provides software, technology infrastructure, and related Information and Communication Technology (ICT) services on a Software-as-a-Service (“SaaS”) basis. Finery Markets acts solely as a software vendor and does not operate a trading platform, does not intermediate, match, execute, clear, or settle transactions, and does not engage in any activities that would require regulatory authorisation under applicable laws.

Finery Markets’ software is non-custodial and is provided exclusively to licensed institutional entities that act as independent operators of their own environments. All counterparties are solely responsible for establishing and maintaining their own bilateral trading and settlement relationships. Finery Markets is not a party to any such arrangements and assumes no responsibility for the conduct, verification, or compliance obligations of any users of the software.

Nothing on this website shall be construed as a financial promotion, investment advice, or an offer to engage in regulated activities. Access to and use of the software is strictly limited to clients who have entered into a software licensing agreement with Finery Markets. Persons located in jurisdictions where such access is restricted should not rely on this website or any of its contents.

Additional notice to UK visitors: This website and associated communications are not intended to constitute a financial promotion under The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) and related guidance. Access to services provided by Finery Markets is limited to regulated entities, professional clients and eligible counterparties as set out by the Financial Conduct Authority. UK users are not permitted to use this website for the services of Finery Markets if they don't fall within these categories.