Payment-versus-Payment

Payment-versus-Payment is a settlement mechanism that ensures the final transfer of one currency occurs only if the final transfer of another currency occurs. This is specifically designed to eliminate foreign exchange settlement risk, where one party pays one currency but does not receive the other.

By linking the two payments, the risk of loss due to a counterparty default is removed. In digital asset markets, this is applied to the exchange of stablecoins or other pegged assets.

It requires coordination between different ledgers or a single platform that supports both assets. It is a vital component for global, cross-currency trade.

The mechanism increases efficiency by reducing the need for intermediary banks and manual reconciliation. It provides a robust framework for secure currency exchange.