ILP Clearing & Settlement Architecture

The Accounting Lifecycle

Hover over steps to highlight the separation of concerns between ILP Nodes and Settlement Engines.

Clearing (Packet Flow)

As ILP Fulfill packets are routed from Peer B to Peer A, Peer A incurs a debt. Both nodes instantly update their internal Clearing Balances. No real money has moved yet.

Settle Threshold Hit

Peer A's balance for Peer B drops below a configured settle_threshold. Peer A decides it must pay Peer B to continue peering.

Trigger Settlement Engine

Peer A's ILP Node sends an API request to its local Settlement Engine (SE) instructing it to settle the specific amount owed to Peer B.

Ledger Transfer

Peer A's SE executes a transaction on the underlying ledger (e.g., Ethereum) transferring real value to Peer B's SE account.

Receipt & Notification

Peer B's SE monitors the ledger, detects the incoming funds, and makes an API call back to Peer B's ILP Node acknowledging receipt.

Balance Credited

Peer B updates its internal Clearing Balance, zeroing out Peer A's debt. Trust is restored, and high-speed packet routing continues.

Layer 1: High-Speed Packet Clearing (ILP Nodes)

Layer 2: Settlement Abstraction (Settlement Engines)

Layer 3: Value Transfer (Underlying Ledger)

Peer A (ILP Node)

Connector

Clearing Balance (vs Peer B)

- $10.00

Settle Threshold Max Balance

Settlement Engine A

Plugin: ETH-Ledger

API: POST /accounts/peer_b/settlements

Connector

Peer B (ILP Node)

Clearing Balance (vs Peer A)

+ $10.00

Max Balance Settle Threshold

Settlement Engine B

Plugin: ETH-Ledger

Event Listener: OnTxConfirmed

Underlying Ledger (e.g., Ethereum Network)

Immutable Value Settlement Layer