What is Settlement Layer?

The settlement layer on a blockchain network is the portion of the protocol used to settle financial transactions through smart contracts. Settlement via smart contract technology is designed to remove or reduce the role of third-party intermediaries, and thus facilitate a direct and trustless exchange between the user and the protocol itself. Automated clearing and settlement on a blockchain network typically take place via an automated market maker (AMM). With the increased popularity of crypto derivatives and futures markets, investing in blockchain-based derivatives is greatly aided by the ability to execute various types of financial transactions using a settlement layer.