Cash-Settled vs. Physically-Settled

A cash-settled derivatives contract resolves at expiration by paying the net difference in value between the contract's agreed price and the underlying asset's actual market price, with no physical asset ever changing hands — the counterparties simply exchange the monetary gain or loss. A physically-settled contract, by contrast, requires the actual underlying asset to be delivered from the seller to the buyer at the agreed price when the contract expires.

Most crypto derivatives, including the large majority of perpetual swaps (see Kaavon's "Perpetual Swap" glossary definition) and many futures products, are cash-settled, since this avoids the operational complexity of arranging actual on-chain or custodial delivery of the underlying asset at settlement, and lets a contract be settled in a stable, widely accepted currency like a stablecoin or fiat equivalent rather than requiring both parties to hold or receive the underlying crypto asset directly. Physical settlement is more common in traditional commodity futures markets and in a smaller subset of crypto futures products specifically designed to result in actual asset delivery.