Cryptographic Currency Settlement for Near-Instant Securities Transfer
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Solution Overview
Problem
The settlement of securities involves risks due to insolvency of counterparty and delayed settlement times, which traditional clearing houses do not adequately address.
Innovation Solution
A cryptographic currency system called SETLcoin is used to facilitate nearly instantaneous settlement of securities through a peer-to-peer network, utilizing a virtual wallet that generates, stores, and manages SETLcoins, which are exchanged for securities and cash equivalents, with a two-phase commitment protocol ensuring secure and immediate ownership transfer.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If traditional clearing houses are used for securities settlement, then central counterparty services and guarantee of completion are provided, but settlement time is delayed (e.g., three business days for stocks) and counterparty insolvency risk remains
Solution Approach 1:
The patent replaces the traditional mechanical clearing house system with a cryptographic cryptocurrency system. The settlement process uses blockchain technology and smart contracts to automatically execute and verify transactions, eliminating the need for manual intervention and central counterparty guarantees. This substitution enables near-instantaneous settlement while maintaining reliability through cryptographic verification.
Solution Approach 2:
The patent changes the fundamental parameters of the settlement system by introducing cryptocurrency with fixed supply and cryptographic verification. This transforms the settlement mechanism from a time-consuming manual process to an automated cryptographic verification process, reducing settlement time from three business days to near-instantaneous while maintaining or improving reliability through smart contract enforcement.
2Reliability
If traditional clearing houses provide central counterparty services, then transaction guarantee is provided, but credit risk from counterparty insolvency cannot be eliminated
Solution Approach 1:
The patent extracts the counterparty insolvency risk from the settlement system by using cryptocurrency with a fixed, predetermined supply. Since the total supply of cryptocurrency is mathematically defined and cannot be inflated, there is no counterparty insolvency risk. The system removes this harmful factor by replacing fiat currency settlements with cryptocurrency that has inherent value stability and no issuer bankruptcy risk.
Solution Approach 2:
The patent introduces cryptocurrency as an intermediary medium that eliminates direct counterparty risk. Instead of relying on central counterparty guarantees or fiat currency stability, the system uses cryptocurrency as a neutral settlement medium that is cryptographically verified and cannot be devalued or defaulted upon. This intermediary approach transfers the guarantee from institutional intermediaries to cryptographic verification.
3Loss of time
If cryptographic currency is used for securities settlement, then settlement time is reduced to near-instantaneous, but system complexity increases due to blockchain and smart contract requirements
Solution Approach 1:
The patent applies multi-functionality by designing a cryptocurrency system that simultaneously handles securities settlement, value transfer, and verification. The same cryptographic infrastructure supports multiple functions: transaction broadcasting, cryptographic verification, settlement execution, and record-keeping. This consolidation reduces the need for separate complex systems while achieving near-instantaneous settlement.
Data Source
AI summary
The present disclosure is directed to security settlement in financial markets and cryptographic currencies. Particular portions of the present disclosure are directed to a cryptographic currency protocol and to a cryptographic currency that includes a positional item. The cryptographic currency protocol supports a virtual wallet that, in various embodiments, is a security and cash account for storing and managing the cryptographic currency. Opening a transaction via the virtual wallet to transfer the cryptographic currency is a strong guarantee of the availability of funds in the virtual wallet because, e.g., funds are not transacted unless the commit phase is successful.