Zero Settlement Risk Token Systems
29 Pages Posted: 7 Apr 2021 Last revised: 21 Sep 2022
Date Written: March 1, 2021
How might modern settlement systems with distributed ledger technology achieve zero settlement risk? We consider the design of settlement systems that satisfies two integral features: information-leakage proof and zero settlement risk. Legacy settlement systems partition private information but are vulnerable to settlement fails. A token system can be designed to achieve both, as long as it employs a protocol that enforces two restrictions: programs must be immediately executed, i.e. a collapse between trade and settlement, and must involve transactions based on verifiable claims. We show concrete implementation of various arrangements, including insurance, derivatives, collateralized loans, and securitization.
Keywords: token system, instant settlement, financial architecture
JEL Classification: G00, G29, E42
Suggested Citation: Suggested Citation