Informal Systems Proposes Revolutionary Peer-to-Peer Clearing System for Cryptocurrency Transactions

New Proposal: Peer-to-Peer Clearing System from Cosmos Co-Founder

Informal Systems, a pioneering blockchain infrastructure firm founded by a key member of the Cosmos Network, is advocating for the creation of a peer-to-peer clearing system.

This innovative platform would allow users to settle debts directly, without the need for intermediaries like banks or clearinghouses.

Innovative Concepts and Vision

In a white paper recently shared with Cointelegraph, the project, titled Cycles, seeks to modernize the clearing process in the realm of cryptocurrency—an area critical to maintaining secure transactions and reconciling liabilities in traditional finance.

The authors of the paper assert that decentralized clearing can significantly enrich Satoshi Nakamoto’s original vision outlined in the landmark document, “Bitcoin: A Peer-to-Peer Electronic Cash System.” Ethan Buchman, the CEO of Informal Systems and a co-founder of the Cosmos Network, remarked that the importance of clearing has been largely marginalized by many in the crypto space, who typically prioritize financial assets. Looking towards the future, Buchman revealed that Informal Systems plans to roll out an initial version of Cycles in 2025.

This new clearing system will leverage an innovative concept known as “atomic multilateral settlement,” designed to optimize debt resolution for numerous participants while keeping costs low.

Versatility and Accessibility

Cycles promises versatility, allowing different types of currency to be incorporated within a unified platform.

This feature could prove advantageous for those who may be unwilling or unable to use specific currencies.

For example, users of Bitcoin wishing to engage with the Cycles system would first route their Bitcoin through a bridge connecting Bitcoin and Cosmos, such as Nomic. Historically, banks have created proprietary clearing networks to handle large volumes of debt with minimal capital investment.

This practice has granted financial institutions a significant liquidity edge, often excluding a vast array of individuals and businesses from its benefits.

Buchman emphasized that a network-focused strategy could yield substantial liquidity savings for average users and enterprises alike.

This change could ease common challenges related to cash flow, working capital, and late payments.

By adopting a peer-to-peer clearing framework, the reliance on traditional intermediaries such as clearinghouses and central banks would diminish.

Future Applications and Challenges

Furthermore, Buchman pointed out the diverse potential applications for Cycles.

These could include automatic loan repayments, alternative financing options for small to medium-sized enterprises, and lending using stablecoins.

Essentially, Cycles aims to be a comprehensive ecosystem for asset management, payment processing, settlement monitoring, and engaging with innovative credit protocols.

However, he acknowledged that the integration of current real-world accounting systems into Cycles, along with maintaining user-friendliness in batch-clearing procedures, will present significant hurdles. Cycles will not be without its competition, such as Yellow Network, which recently raised $10 million in funding led by Ripple, highlighting the increasing demand for alternative clearing solutions. “`html

Source: Cointelegraph.com

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