Current post-trade clearing systems rely almost exclusively on cash or cash-like collateral, leaving vast reserves of short-term liquidity embedded in trade credit outside formal settlement infrastructures. This paper introduces a clearing framework that integrates accounts receivable and payable (AR/AP) into secondary market settlement via the Cycles Protocol—a distributed, multilateral mechanism based on double-entry accounting and atomic cycle execution.

The Cycles Protocol acts as a clearing and settlement layer that reduces liquidity needs by using multilateral set-off and cycle removal to maximize balance-sheet compression. It operates without novation and complements, rather than replaces, CCPs’ margining, loss mutualization, and default management.

Compared with Liquidity-Saving Mechanisms (LSMs) in Real-Time Gross Settlement (RTGS) systems, this approach extends liquidity optimization beyond interbank payments to real-economy financing networks, reducing systemic reliance on scarce collateral and central intermediaries.