> ## 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.

# How Settlement Works

> How clearing and settlement remain separate, and what settles when.

Settlement is how a bank discharges what it owes another bank. The Cosmos
Tokenization Suite deliberately separates settlement from clearing, allowing
payments to run continuously.

## Clearing and settlement are separate

Client payments clear continuously on the digital ledger. The obligations they
create settle afterwards, on demand or on a schedule.

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

The separation also makes the settlement rail a choice. Two banks agree on how they settle without changing how either bank
clears. See [Settlement Options](/settlement/settlement-options).

## What accumulates between runs

Cross-bank transfers move value immediately and record an obligation at the same
time. Those obligations accumulate until a settlement run discharges them.

The exposure a bank carries between runs depends on two controls: settlement
frequency and whether obligations settle gross or netted. More frequent
settlement reduces exposure and increases settlement traffic. Netting reduces
traffic and required liquidity, while increasing the position carried during the
interval.

## What settles, and on what

| Question                 | Answer                                                                |
| ------------------------ | --------------------------------------------------------------------- |
| What is being discharged | The obligations recorded as client payments cleared                   |
| Gross or netted          | A choice, agreed between the counterparties                           |
| Over what rail           | A stablecoin rail, a tokenized deposit network, or a traditional rail |
| When it is irreversible  | Depends on the rail. See [Finality](/settlement/finality)             |

## Related

* [Settlement Options](/settlement/settlement-options) for the available rails
* [Atomic Settlement](/settlement/atomic-settlement) for all-or-nothing execution
* [Delivery vs Payment](/settlement/delivery-vs-payment) for coupling an asset leg
  to a cash leg
* [Finality](/settlement/finality) for when settlement becomes irrevocable
* [Settlement Asset Custody for 24/7 Payments](/digital-asset-custody/settlement-for-payments)
  for the stablecoin rail end to end