Settlement

Understanding Settlement in Crypto Trading

Settlement refers to the process of executing limit or market orders on a decentralized exchange (DEX) that operates based on an order book. When a user places a trade order, the associated funds or assets are transferred to their crypto wallet, where they await the completion of the trade.

In order to finalize these trades, a settlement process is required. Users must give permission for the assets processed from the trade orders to be added back into their crypto wallet.

For traders who execute multiple orders within a short time frame, it is crucial to have a well-designed user experience (UX) and user interface (UI) to facilitate the settlement of funds. This ensures a seamless and efficient trading experience, while also maximizing the availability of funds for subsequent trade orders.

Unlike traditional financial institutions or trading in traditional finance (TradFi) with stocks, settlements in DEXs and decentralized finance (DeFi) do not rely on third-party intermediaries. Instead, they are automated through code and smart contracts. Various mechanisms, such as automated market makers (AMMs), aggregators, and order books, are used to settle orders.

When it comes to settlement, users may incur additional fees. These can include transaction fees for opening and closing limit or market orders, swap fees for using aggregators, or liquidity provider fees for utilizing an AMM. However, these fees are often minimal compared to the fees charged by intermediaries in TradFi. Additionally, on blockchains with high transaction speeds and low gas fees like Solana and Avalanche, these fees are affordable and transactions are fast. This allows users to execute trades of any size using flexible strategies.

About the Author: Hisham Khan, CEO of Aldrin

Hisham Khan has a decade-long background in managing and developing innovative financial and enterprise technology. With extensive experience at Bloomberg and based in New York, Hisham has worked closely with top engineers as a project manager. It was during this time that he recognized the transformative potential of cryptocurrencies. Since leaving Bloomberg, Hisham has been dedicated to building comprehensive and user-friendly trading tools through Aldrin. His ultimate goal is to make advanced crypto trading and strategy development accessible to everyone.