ILP Peering, Clearing & Settling

Interaction Flow

1. High-Speed Clearing

ILP packets flow rapidly from Peer A to Peer B. No real money moves yet. The nodes merely update their internal bilateral Accounting Ledgers, increasing Peer A's liability.

2. Settlement Threshold Breached

The internal balance hits the Settlement Threshold. Peer B refuses to process more packets because their credit exposure to Peer A is too high. A settlement is triggered.

3. Ledger Settling

Peer A's Settlement Engine initiates a transfer on the underlying slow Core Ledger (e.g., Bank, Blockchain). Real value physically moves to Peer B's Settlement Engine.

4. Balance Reset (Settle-To)

Peer B confirms receipt of funds on the ledger. Their Settlement Engine notifies the Accounting System to credit the account. The balance drops back down to the Settle-To point, and fast clearing resumes.

Pre-funding vs Post-funding

This visualization shows Post-funding: processing packets on credit until a threshold is hit. In Pre-funding, the settlement happens first, pushing the balance negative (prepaid), and packets draw it back to zero.

Bilateral Account Balance (Peer B's perspective)

Settle-To (20%)

Settlement Threshold

Max Balance

ILP Node A

Accounting System

Bal: -$ (Liability)

Settlement Engine A

Triggers outbound transfer

ILP Node B

Accounting System

Bal: +$ (Asset)

Settlement Engine B

Detects inbound transfer

Underlying Settlement Ledger

Where irrevocable value physically moves