Set-off. Set-off is the discharge of obligations without money. This is done by balancing obligationsacross balance sheets so they offset each other. If Alice owes Bob and Bob owes Alice, they can doset-off. Set-off is more interesting when there are cycles of size greater than two – if Alice owes Boband Bob owes Carol and Carol owes Alice, they can all set off the lowest amount.

Alice’s money gets assigned to Carol, and all debts are set off, without anynew relationship between Alice and Carol.

The major difference with Cycles is that Alice doesn’t simplypublish a transaction to send $10 to Bob; she first declares that she owes Bob $10

Perhaps Alice’s counterparty Bob doesn’t accept stablecoins;he only accepts ATOM. However, he may owe Carol $10, and Carol does accept the stablecoin. Byhaving Alice, Bob, and Carol all declare their intents, Cycles can transfer Alice’s stablecoin directlyto Carol (without them being aware of each other) and publish set-off notices for everyone

At regular intervals (e.g. daily, monthly),solvers execute and find solutions that clear the most obligations for the most people with the leastamount of liquidity, based on the published intents

Our defaultsolver is a min-cost max-flow algorithm called Multilateral Trade Credit Set-off (MTCS

our proposed payment system is designed without such intermediaries, and is focused onliquidity saving via set-off.

onnect their internal accounting system to a global network that optimizes theclearing of credits and debts using the available sources of liquidity