Blockchain Smart Contract Settlement for Synchronous FX Transactions

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Solution Overview

Problem

Current cross-border payment systems face asynchronous transactions due to time differences between banks, leading to settlement lags and increased Herstatt risk.

Innovation Solution

A blockchain-based transaction method using smart contracts to ensure synchronous transactions by soliciting confirmation from a transaction recipient node, encrypting messages with public keys, and performing compliance verification to execute transactions only when both parties agree.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Reliability

If agency-based centralized cross-border payment mode is used, then transaction completion can be achieved, but settlement lag occurs due to time differences between banks, resulting in asynchronous transactions

Engineering Contradiction:

Improvetransaction completionVSAvoidsettlement lag

Core Design Contradiction:

ReliabilityVSLoss of time

Solution Approach 1:

The patent introduces a blockchain system as an intermediary layer between banks in different time zones. The blockchain network acts as a neutral mediator that coordinates transaction settlement, allowing participating banks to commit to transactions and receive confirmations asynchronously while ensuring eventual settlement consistency, thereby eliminating the need for simultaneous settlement during specific time windows.

Inventive Principle:

Principle #24Intermediary (Mediator)

Solution Approach 2:

The patent implements a preliminary commitment mechanism where banks submit transaction requests and receive preliminary confirmations from the blockchain system before actual settlement. This preliminary action allows banks to prepare for settlement in advance, and the actual settlement can occur at convenient times without being constrained by real-time synchronization requirements.

Inventive Principle:

Principle #10Preliminary action

2Reliability

If correspondent banks participate in cross-border payment, then transactions can be completed, but Herstatt risk increases due to asynchronous settlement

Engineering Contradiction:

Improvetransaction completionVSAvoidHerstatt risk

Core Design Contradiction:

ReliabilityVSObject-affected harmful factors

Solution Approach 1:

The patent implements a commitment-based settlement mechanism where banks provide advance commitment and confirmation on transaction obligations before settlement occurs. This beforehand cushioning ensures that both parties are bound to the transaction terms prior to settlement, eliminating the scenario where one party fulfills obligations while the other does not, thereby cushioning against Herstatt risk.

Inventive Principle:

Principle #11Beforehand cushioning (Prior cushioning)

Solution Approach 2:

The patent introduces a feedback mechanism through the blockchain system that provides transaction status updates and settlement confirmations to all participating banks. This feedback loop ensures that all parties have visibility into the settlement state, allowing them to take appropriate actions and reducing information asymmetry that contributes to Herstatt risk.

Inventive Principle:

Principle #23Feedback

3Reliability

If centralized payment system is used, then transaction processing can be achieved, but operational efficiency decreases due to time zone constraints

Engineering Contradiction:

Improvetransaction processingVSAvoidoperational efficiency

Core Design Contradiction:

ReliabilityVSProductivity

Solution Approach 1:

The patent transforms the static, synchronized settlement model into a dynamic, asynchronous model. Banks can submit transactions and receive confirmations at different times based on their local operating hours, and the blockchain system dynamically coordinates the settlement process. This dynamic approach allows continuous operation across time zones without requiring all participants to be simultaneously active.

Inventive Principle:

Principle #15Dynamics

Data Source

PatentEP4660914A1Transaction method and apparatus, device and storage medium

Publication Date: 2025.12.10 THE PEOPLES BANK OF CHINA DIGITAL CURRENCY INST

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AI summary

A transaction method, comprising: a transaction initiator node (11) sends transaction request information of a current transaction to a blockchain, the transaction request information being used for requesting to confirm whether a transaction receiver node (12) agrees to perform the current transaction; the transaction initiator node (11) acquires, from the blockchain, transaction response information sent by the transaction receiver node (12), and when the transaction response information indicates that the transaction receiver node (12) agrees to the current transaction, calls a smart contract on the blockchain, and executes the current transaction to generate a first synchronous transaction event, the first synchronous transaction event being used for indicating that the transaction initiator node (11) has executed the current transaction; and when it is determined that the transaction receiver node (12) has called the smart contract on the blockchain and executed the current transaction to generate a second synchronous transaction event, determining that the current transaction is completed, the second synchronous transaction event being used for indicating that the transaction receiver node (12) has executed the current transaction.