Post-Trade Friction refers to inefficiencies, costs, and operational delays that occur after a trade has been executed but before final settlement and reconciliation. In crypto, this encompasses issues like high transaction fees, slow block finality, cross-chain interoperability challenges, and manual reconciliation processes for institutional options or RFQ transactions.
Mechanism
The operational manifestation includes network congestion leading to increased gas fees, delays in transferring assets between different blockchain networks or centralized custodians, and the manual resolution of discrepancies between trade confirmations and on-chain records. These elements collectively impede the rapid, cost-effective, and automated processing.
Methodology
Reducing post-trade friction involves implementing automation through smart contracts for settlement, leveraging layer-2 scaling solutions for faster and cheaper transactions, and adopting standardized communication protocols for institutional trading. Efforts also focus on enhancing cross-chain bridges and integrating robust reconciliation software to streamline the entire post-trade lifecycle.
Counterparty risk in an RFQ system manifests as unpriced operational and informational frictions that degrade execution quality and capital efficiency.
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