Cosmos co-founder proposes peer-to-peer clearing system in white paper

As a seasoned crypto investor with a penchant for blockchain technology and its potential to disrupt traditional finance, I find the Cycles project by Informal Systems intriguing. Having navigated through the crypto market’s ups and downs since its inception, I can appreciate the vision of tackling the often-overlooked liabilities side of finance.

Under the leadership of a Cosmos co-founder, Informal Systems proposes a decentralized debt settlement system. This innovative setup enables individuals to settle their debts directly with one another, eliminating the need for third parties such as clearinghouses or financial institutions.

As per information from a document (white paper) sent to CryptoMoon, the objective of Cycles is to serve as the cryptocurrency answer to clearing – a critical procedure in conventional banking that ensures safe transactions for payment transfers and settling debts.

The idea being presented suggests that the concept of decentralized clearing is a counterpart or opposite aspect to what was proposed in Satoshi Nakamoto’s influential whitepaper, entitled “Bitcoin: A Decentralized Digital Payment Network.

However, Ethan Buchman – CEO of Informal Systems and co-founder of the Cosmos Network – pointed out that innovators in the crypto sphere have primarily concentrated on the asset aspect, rather than exploring the liabilities side of financial systems.

Informal Systems is looking to roll out a first version sometime in 2025, Buchman said.

Transactions will be facilitated through a mechanism known as “Atomic Multilateral Settlement,” a blockchain-based system, which aims to settle the maximum amount of debt for the greatest number of individuals using minimal resources, as explained by Buchman.

It’s possible to bring together various forms of currencies on a single chart, making it accessible to an increasing number of individuals, regardless of whether they utilize or acknowledge the specific currency itself.

Cosmos co-founder proposes peer-to-peer clearing system in white paper

To utilize the clearing system, someone who uses Bitcoin (BTC) would have to move their Bitcoins over to Cycles using a Bitcoin-Cosmos bridge like Nomic, according to Buchman’s explanation.

Over numerous centuries, financial institutions have established exclusive networks for resolving substantial amounts of debt, frequently without the exchange of actual currency.

“This results in massive liquidity savings for them,” Buchman said.

Consequently, everyone apart from the banks has allegedly been “consistently shut out” from enjoying the liquidity advantages that clearing offers. Buchman argues this is a reason to establish a peer-to-peer clearance system.

“The network view opens tremendous opportunities for everyday people and businesses to save liquidity: Save on cash flow stress, working capital costs, late payments, and so on.”

As a crypto investor, I can confidently say that an effective solution would significantly diminish my dependence on intermediaries such as clearinghouses and central banks, paving the way for a more decentralized investment experience.

Buchman highlighted various potential applications for Cycles, such as automated loan repayment systems, financing options for small and mid-sized businesses, and the provision of stablecoins for lending purposes.

“[It] provides a convenient all-in-one platform for managing their assets, making payments, tracking settlements, and participating in new kinds of credit protocols.”

Buchman indicated that the primary hurdle might involve seamlessly merging actual financial systems with Cycles, and ensuring that the batch-processing functions are straightforward, easily accessible, and designed to be user-friendly.

As a researcher, I find myself observing an intriguing development within our field: Cycles is gearing up to challenge established players like Yellow Network. Notably, Yellow Network secured a significant investment of $10 million, spearheaded by Ripple, last September. This funding round underscores the potential for fierce competition between these dynamic entities in the near future.

2024-11-21 18:16

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