> ## Documentation Index
> Fetch the complete documentation index at: https://cts-docs.cosmos.network/llms.txt
> Use this file to discover all available pages before exploring further.

# Settlement Asset Custody for 24/7 Payments

> How the Cosmos Tokenization Suite uses custodian-held settlement assets to settle interbank obligations arising from 24/7 client payments.

In the 24/7 payment application, client payments between two banks clear
continuously on the Cosmos Tokenization Suite (CTS)'s tokenization layer. Settlement
occurs separately: the banks transfer a mutually agreed settlement asset between
their custodial wallets to settle the resulting interbank obligations. Settlement
runs on demand or on a schedule and covers gross obligations across all payments
between the two banks' clients.

## Why clearing and settlement are separate

Separating clearing from settlement allows payments to run around the clock.
Clients see their payment complete as soon as the two banks coordinate it,
without waiting for a settlement window.

## Architecture

```mermaid theme={"theme":{"light":"github-light-high-contrast","dark":"github-dark-high-contrast"}}
flowchart LR
  subgraph BankA["Commercial Bank A"]
    subgraph Existing["Existing Banking Systems"]
      Core["Core Ledger"]
    end
    subgraph Issuance["Issuance"]
      Digital[("Digital Ledger")]
      Registry["Interbank Obligation Registry"]
    end
  end

  BankB["Commercial Bank B"]
  API["Custodian API"]

  subgraph Chain["Settlement Chain, for example Ethereum"]
    WalletA["Bank A Wallet"]
    WalletB["Bank B Wallet"]
  end

  Core -->|"1. Tokenize"| Digital
  Digital -->|"Writeback"| Core
  Digital <-->|"2. Fast transfer messages over IBC"| BankB
  Digital -->|"3. Record obligation"| Registry
  Registry -->|"4. Initiate settlement"| API
  API -->|"5. Sign and broadcast"| WalletA
  WalletA -->|"Settlement asset, for example USDC"| WalletB
  BankB -.->|"6. Managed by B's providers"| WalletB
```

## Flow

<Steps>
  <Step title="Bank A tokenizes client deposits">
    CTS writes a tokenized representation of the deposit balance to the digital
    ledger it runs alongside the bank's core. The two ledgers stay synchronized,
    with balance changes written back to the core.
  </Step>

  <Step title="CTS coordinates the payment with Bank B">
    When a client initiates a payment, CTS exchanges fast transfer messages
    with Bank B's tokenization infrastructure over Inter-Blockchain Communication.
    Coordination covers debiting, crediting, and clearing. Each bank's compliance
    systems apply its KYC and AML checks over the policy and logs interface.
  </Step>

  <Step title="CTS updates the interbank obligation">
    Once coordination succeeds, the payment is complete from the clients' point of
    view. CTS records the resulting obligation between Bank A and Bank B in
    the interbank obligation registry.
  </Step>

  <Step title="CTS invokes the custodian API">
    Periodically or on demand, CTS calls the custody provider's API to initiate
    settlement of the accumulated obligations. The custodian applies the bank's
    signing policy before acting.
  </Step>

  <Step title="The custodian transfers the settlement asset">
    The custody provider signs and broadcasts a transfer of the settlement asset
    from Bank A's wallet to Bank B's wallet on the settlement chain. Obligations
    are marked settled once the transfer reaches finality.
  </Step>

  <Step title="Bank B receives into its own custodial wallet">
    Bank B's wallet may be managed by the same custody and issuance providers as
    Bank A, or by a different set.
  </Step>
</Steps>

## What the two banks agree on

Settlement only requires the counterparties to align on a small number of terms:

* The settlement asset, for example a regulated stablecoin
* The settlement chain the asset is held on
* The settlement trigger, whether on demand, on a schedule, or on an obligation
  threshold
* The wallet addresses each bank settles to

Provider choice stays independent on each side. Bank A changing custodians does
not require Bank B to change anything, provided the settlement asset and chain
are unchanged.

## Related

* [Overview](/digital-asset-custody/overview) for the division of responsibility
  between CTS, the bank, and the custodian
* [Connecting a Custody Provider](/digital-asset-custody/integrations) for the
  integration surface
* [Settlement](/settlement/overview) for finality and delivery versus payment