Settlement Layer

In the context of a blockchain network, the settlement layer is a fundamental component of the protocol utilized for settling financial transactions through smart contracts. This mechanism aims to minimize or eliminate the role of third-party intermediaries, enabling direct and trustless exchanges between users and the protocol itself. Automated clearing and settlement are typically facilitated through an automated market maker (AMM). With the growing popularity of crypto derivatives and futures markets, the presence of a settlement layer is essential for executing various types of financial transactions on the blockchain.