Cryptographic Token Segmentation for Regulated Settlement
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Solution Overview
Problem
Existing cryptocurrency systems face challenges in compliance with regulatory frameworks due to their distributed nature, leading to inefficiencies, counterparty risk, and difficulties in simultaneous transaction settlement, while traditional payment systems like ACH transfers and wire transfers pose structural problems for digital asset transactions.
Innovation Solution
A bank-issued electronic negotiable instrument, Avit, is implemented via a smart contract on a blockchain, allowing for compliance with regulations and enabling simultaneous settlement of transactions through a cryptographic token system.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If a distributed consensus network is used for cryptocurrency circulation, then security and reliability are improved, but regulatory compliance and transaction control become difficult
Solution Approach 1:
The patent segments the circulation system into multiple independent circulation groups (first circulation group and second circulation group) with different regulatory regimes. Each group operates under its own smart contract rules, allowing simultaneous compliance with different regulatory frameworks while maintaining the security benefits of the distributed consensus network.
Solution Approach 2:
The patent introduces a bank as an intermediary that issues the cryptographic tokens and manages the circulation groups. The bank acts as a trusted intermediary that ensures regulatory compliance while the underlying blockchain technology maintains transaction security and immutability.
2Adaptability or versatility
If traditional payment systems like ACH transfers are used, then regulatory compliance is improved, but settlement speed and efficiency deteriorate
Solution Approach 1:
The patent replaces the mechanical, multi-day settlement process of traditional ACH transfers with a cryptographic token system that leverages blockchain technology. The smart contracts automate settlement processes, enabling near-real-time finality while maintaining regulatory compliance through programmable rules and bank oversight.
3Reliability
If wire transfers are used for digital asset transactions, then security is improved, but transaction speed and cost efficiency deteriorate
Solution Approach 1:
The patent creates a universal cryptographic token system that can serve multiple functions: it provides the security of bank-issued instruments, the speed of digital asset transactions, and compliance with regulatory frameworks. The same token infrastructure supports both secured transactions and general circulation.
Solution Approach 2:
The patent changes key parameters of the transaction system by using cryptographic tokens with programmable smart contracts that enable faster settlement finality compared to traditional wire transfers, while maintaining security through bank issuance and regulatory-compliant circulation group structures.
4Ease of operation
If cryptographic tokens are issued without circulation group restrictions, then liquidity and ease of transfer are improved, but regulatory control and compliance monitoring deteriorate
Solution Approach 1:
The patent segments the token population into different circulation groups with specific transfer rules. The first circulation group allows broader transferability while the second circulation group imposes restrictions, enabling the system to provide both high liquidity where needed and regulatory control where required.
Solution Approach 2:
The smart contracts automatically enforce circulation group rules and compliance requirements, eliminating the need for manual compliance monitoring. The system self-manages transfer restrictions and regulatory controls through programmable logic, reducing operational complexity.
Data Source
AI summary
A custom cryptographic token and smart contract that is configured to exist in one of two groups and is issued by the same bank or depository institution that also collects corresponding fiat currency deposits. The two groups are a circulation group and a non-circulation group. The non-circulation group is not associated with any given user, but rather an issuing entity. Custom cryptographic tokens residing in the circulation group are associated with a user and are traded according to smart contract protocol.