Settlement | Oracle Papers

Exercise Semantics

Oracle contracts are European-style: the payoff is a function solely of the settlement price at expiry, and no holder exercise decision exists. Settlement is automatic and cash-settled in SOL.

Settlement Price

Let $\{t_j\}$ denote the sequence of observations published by the settlement oracle and $T$ the contract expiry. The settlement time is the first valid observation at or after expiry,

t^{*} = \min\{\, t_j : t_j \ge T,\ t_j \text{ valid} \,\}, \tag{1}

and the settlement price is $S_T := S_{t^{*}}$ . The payoff is evaluated by the contract's capped payoff function,

\Pi = \min\!\left(M,\; M \cdot \frac{(\omega \cdot (S_T - K))^{+}}{K}\right), \tag{2}

where $\omega = +1$ for a call and $\omega = -1$ for a put. On settlement, $\Pi$ is disbursed to the holder from locked collateral and $M - \Pi$ is returned to free collateral.

Price Feed

Prices are sourced from a time-weighted, manipulation-resistant settlement oracle. A single feed supplies both the spot input to the pricing engine and the settlement price at expiry, ensuring consistency between marked and settled values.

Early Close

A holder may close a position at any $t \lt T$ . The early-close value is the live model value net of protocol spread:

V_{\text{close}}(t) = \max\!\left(0,\; V_{\text{model}}(S_t, K, \tau_t, M) - s\right), \tag{3}

where $V_{\text{model}}$ denotes the pricing-engine value at current spot $S_t$ and remaining tenor $\tau_t$ , and $s$ the protocol spread defined in Fees. On early close, the locked maximum payout $M$ is released to free collateral.