When an option is exercised, the payout happens one of two ways: the actual asset changes hands (physical), or the cash difference is paid out (cash). Etcha supports both — with different collateral requirements for each.
Two Paths, One Contract
The Settlement Fork
The settlement mode is chosen when the option is created — not at exercise. Both paths start from the same ErgoScript contract. The oracle provides the current market price (spot price); the contract handles the rest.
Walkthrough 1
Physical Call — rsETH Changes Hands
The writer locks the actual asset. If exercised, the buyer pays the strike price and receives the locked token. The writer keeps the strike payment plus the premium.
PANEL 1
Writer Locks
Writer deposits 1 rsETH as collateral. Mints call at $2,000 strike.
PANEL 2
Buyer Purchases
Buyer pays 50 SigUSD premium. Writer collects it.
PANEL 3
Expiry: ETH = $2,400
Buyer exercises. Pays $2,000 SigUSD strike to the contract.
Writer deposited rsETH at creation. Buyer pays the strike to receive it. The actual token changes hands — this is physical delivery.
Walkthrough 2
Cash-Settled Call — No Token Involved
The writer locks stablecoins. If the price exceeds the strike, the difference is paid to the buyer in SigUSD. No bridging, no token transfer.
PANEL 1
Writer Locks
Writer deposits SigUSD collateral. Mints call at $2,000 strike.
PANEL 2
Buyer Purchases
Buyer pays 50 SigUSD premium.
PANEL 3
Expiry: ETH = $2,400
Payout = $2,400 − $2,000 = $400 SigUSD.
PANEL 4
Settlement
$400 SigUSD lands in buyer's wallet. No rsETH involved. No bridging.
No rsETH needed. Pure USD difference, paid in SigUSD. This is how commodities and indices settle too — you can't physically deliver a barrel of oil on-chain.
Walkthrough 3
Cash-Settled Put — Protection Pays in Stablecoins
PANEL 1
Writer Locks
Writer deposits SigUSD (strike × contracts). Mints put at $0.25.
PANEL 2
Buyer Purchases
Buyer pays 30 SigUSD premium.
PANEL 3
Expiry: ERG = $0.18
Payout = $0.25 − $0.18 = $0.07/ERG.
PANEL 4
Settlement
Buyer receives $0.07 × contract_size in SigUSD.
The writer was willing to buy ERG at $0.25. Cash settlement pays the difference instead — the writer doesn't receive ERG, the buyer doesn't sell it. Both sides settle in stablecoins.
Where rsTokens Come From
Rosen Bridge — Physical Delivery's Upstream
Physical settlement on Etcha uses rsTokens (rsBTC, rsETH, etc.) — bridged representations of assets from other chains. The bridge operates upstream of Etcha; it's not part of the exercise flow.
Rosen Bridge uses a network of independent operators (called watchers) who verify that assets on other chains match the tokens minted on Ergo. Etcha uses these rsTokens as physical delivery assets. The bridge operates upstream; it's not involved at exercise time.
When to Use Which
Settlement Decision Matrix
Use Case
Best Settlement
Speculation / quick profit
Cash — Simpler, no bridging needed
Accumulating a specific token
Physical — Receive the actual asset
Hedging existing holdings
Cash — Offset losses in SigUSD
Commodities & indices
Cash only — No physical gold delivery on-chain
Writer already holds the asset
Physical call — Lock what you own
Writer holds stablecoins
Cash or physical put
Small size trades
Cash — Avoid bridge fees and extra steps
Etcha-SpecificCash-settled options on Etcha pay out in SigUSD or USE — Ergo-native stablecoins. Physical settlement is only available for crypto assets that Rosen Bridge supports. Commodities (Gold, WTI) and indices (S&P 500) are always cash-settled via oracle price feeds.
Key Takeaway
Physical settlement delivers the actual token — use it when you want to accumulate an asset (rsETH, ERG, DexyGold). Cash settlement pays the price difference in stablecoins — use it for speculation, hedging, and assets without on-chain tokens (oil, equities). The settlement mode is chosen at creation, not at exercise.