# Settlement and Cash Flow

Settlement and cash flow handling define how **economic value moves between the real world and the blockchain**. Unlike purely digital assets, RWAs require coordination between on-chain records and off-chain payments. This section explains how that coordination is structured, verified, and constrained.

The protocol does not attempt to custody funds or replace payment systems. It provides **deterministic settlement logic** and **auditable linkage** between on-chain entitlements and off-chain cash movements.

***

#### Separation of Cash Movement and Accounting

A core principle is separating:

* **cash movement** (off-chain)
* **entitlement accounting** (on-chain)

The blockchain records *who is entitled to what* and *when*, while cash is moved through traditional rails such as banks, payment processors, or stable settlement providers.

This avoids forcing RWAs into unsuitable on-chain custody models while preserving transparency.

***

#### Settlement Flow (High Level)

A typical settlement cycle follows this structure:

```
Asset Generates Cash Flow
        │
        ▼
Off-Chain Payment Execution
        │
        ▼
Attestation of Payment
        │
        ▼
On-Chain Settlement Record
        │
        ▼
Token Holder Entitlements Updated
```

The protocol records **that settlement occurred**, not the movement of fiat itself.

***

#### Types of Cash Flows

The settlement model supports multiple cash flow types, including:

* periodic yield or interest payments
* revenue distributions
* principal repayments
* redemption payouts

Each cash flow type is defined during asset onboarding and mapped to on-chain logic.

***

#### Entitlement Calculation

On-chain entitlements are calculated deterministically based on token holdings.

At a conceptual level:

$$
Entitlementi​=Total Circulating SupplyTokens Heldi​​×Distributable Amount
$$

This calculation:

* is transparent
* is reproducible by any observer
* does not depend on issuer discretion

***

#### Distribution Models

Different assets may use different distribution mechanisms.

| Model         | Description           | Use Case             |
| ------------- | --------------------- | -------------------- |
| Pro-rata      | Equal share per token | Yield-bearing assets |
| Tranche-based | Priority ordering     | Structured products  |
| Event-based   | Triggered payouts     | Redemptions or exits |

The protocol enforces the **distribution logic**, not the payment rail.

***

#### Stable Settlement and Currency Handling

Cash flows may be denominated in:

* fiat currencies
* stable settlement assets
* other agreed units of account

The protocol:

* records the unit of account
* records settlement amounts
* does not perform FX conversion implicitly

Any conversion logic must be explicit and externally attested.

***

#### Attestation of Settlement

Because payments occur off-chain, settlement relies on **attestations**.

Settlement attestations confirm:

* that payment occurred
* the amount settled
* the date and scope of settlement

These attestations are:

* attributable to specific roles
* recorded immutably
* subject to audit and dispute

They are inputs to state transitions, not unquestioned truth.

***

#### Handling Partial or Delayed Settlement

Settlement may be incomplete or delayed due to:

* operational issues
* counterparty failure
* legal disputes

When this occurs:

* partial settlement can be recorded
* remaining entitlements remain outstanding
* transfers may be restricted if required

The protocol avoids forcing optimistic assumptions.

***

#### Redemption and Final Settlement

Redemption is treated as a terminal settlement event.

During redemption:

* entitlement calculations are finalized
* settlement amounts are recorded
* redeemed tokens are burned or closed

Formally:

Outstanding Entitlementi→0after confirmed settlement\text{Outstanding Entitlement}\_{i} \rightarrow 0 \quad \text{after confirmed settlement}Outstanding Entitlementi​→0after confirmed settlement

Once redemption completes, the asset moves toward lifecycle closure.

***

#### Auditability and Reconciliation

Settlement records provide a full audit trail.

Auditors can verify:

* entitlement calculations
* settlement events
* discrepancies over time

On-chain records act as a **single source of accounting truth**, even when payments are executed externally.

***

#### What the Protocol Does *Not* Do

To avoid ambiguity, the protocol does not:

* move fiat or custody funds
* guarantee timely payment
* resolve off-chain payment disputes

It records **what should have happened** and **what was attested to have happened**.

***

#### Failure and Dispute Handling

If settlement attestations fail or are contested:

* further transfers may be paused
* escalation paths are triggered
* governance processes may intervene

The system prioritizes **capital protection over liquidity**.

***

#### Settlement and Cash Flow Summary

| Aspect            | Responsibility       |
| ----------------- | -------------------- |
| Cash movement     | Off-chain rails      |
| Entitlement logic | On-chain             |
| Calculation       | Deterministic        |
| Verification      | Attestations         |
| Audit             | Public and immutable |

***

#### Why This Model Matters

RWA platforms often fail by:

* mixing custody and accounting
* hiding settlement delays
* relying on issuer discretion

This model avoids those failures by:

* separating responsibilities
* enforcing deterministic entitlement logic
* making settlement status explicit

The result is a system that remains **trust-minimizing even when cash is not on-chain**.