How Onchain FX Actually Works: Atomic Settlement Explained

FX moves nearly 10 trillion dollars every day. Most of it still settles on systems built before global email adoption. We have microsecond execution at the front of a trade, then multi-hour exposure at the back. Institutions accept billions in daily settlement risk because the infrastructure cannot keep up with the volume.

Most people hear “onchain FX” and picture AMMs, liquidity pools, or permissionless swaps. That’s one version, but it’s not the one that matters for global liquidity. The institutional version of onchain FX is about programmable settlement on shared ledgers using real fiat money. It’s already live. And it’s reshaping how currencies move at systemic scale.

A single moment shows why this matters.

The Herstatt Problem

In 1974, regulators shut down Herstatt Bank in the middle of the business day. Counterparties in Europe had already released Deutsche Marks. The US dollars scheduled to settle later never moved. New York banks woke up to find they had sent millions into a void. The losses spread within hours.

The core issue was structural. Settlement systems around the world didn’t operate on the same clock. When one leg of a trade moves before the other, the sending institution is exposed until its counterparty delivers. That exposure lives inside the timing gap.

The Continuous Linked Settlement Response

In 2002, Continuous Linked Settlement (CLS) launched with a synchronized model that protected institutions through payment-versus-payment (PvP) settlement inside a controlled window. It became the industry’s safety net.

Today CLS settles more than 7 trillion dollars daily across 18 currencies. It reduced settlement risk significantly, although the design still carries limits:

• It runs during a fixed 5-hour window
• It requires pre-funding
• It covers only specific currencies and participants
• It behaves like a centralized utility rather than a programmable protocol

CLS reduced the pain. Atomic settlement removes the assumption.

Why Atomic Settlement Changes the Equation

Atomic settlement replaces the settlement window with synchrony. Both legs settle at the exact same moment, or nothing settles. Funds lock until both currencies are ready. If anything breaks, the system cancels the entire transaction and releases the funds.

The pattern is straightforward. Bank A locks USD. Bank B locks SGD. A coordinated instruction checks both. If conditions align, the system releases both simultaneously. If not, everything unlocks.

Settlement becomes a deterministic instruction rather than a time-dependent process.

What Makes Atomic Settlement Possible: Tokenized Deposits

Atomic settlement only works when both sides of a trade exist on the same programmable infrastructure. That’s the shift tokenized deposits enable.

When banks represent their deposits as programmable tokens on shared ledgers, those tokens become composable settlement instructions. Bank A’s USD and Bank B’s SGD can be locked, verified, and released by the same infrastructure. If a condition fails, the system unwinds everything deterministically.

This was impossible when deposits lived in siloed banking systems with different timelines, APIs, and cutoffs. Tokenized deposits create a shared settlement fabric where atomic operations become native instead of bolted on.

Three institutional models show how this works in practice.

Three Models of Institutional Onchain FX

Institutions are converging on three architectures for atomic settlement. Each supports PvP, but they differ in how they represent and mobilize liquidity.

1. Direct bank-to-bank models (Partior)

Banks tokenize their deposits on a shared ledger. When Bank A trades USD for Bank B’s SGD, the tokens map directly to commercial bank money on each balance sheet.

Partior already supports USD, SGD, and JPY. It settles cross-currency trades in seconds. A Singapore treasury desk can run USD–SGD PvP intraday without waiting for correspondent banks to reconcile balances.

2. Shared liquidity utilities (Fnality)

Fnality pools institutional liquidity inside regulated settlement assets held at central banks. Each currency lives inside a Utility Settlement Coin, backed 1:1 by central bank funds.

Participants settle against a shared pool, which reduces fragmentation and preserves regulatory clarity. Liquidity becomes collective rather than siloed.

3. Programmable FX

In this model, settlement logic is programmable. Timing, routing, conditional checks, and multi-party workflows are encoded directly in code.

A treasurer can write conditions such as: “Only settle this EUR–JPY trade if SOFR stays below 4.5 percent at execution.” The system checks the rate, confirms both currencies, and either settles atomically or cancels everything.

Projects like Ubin+ and multiple central bank sandboxes are already exploring this approach.

Real Systems Already Running

These aren’t prototypes. JPM Coin supports intraday, multi-currency settlement inside a permissioned ledger. Partior executes real USD–SGD–JPY atomic transactions. mBridge has processed thousands of cross-border trades in Asia and the Middle East.

Each system represents real money as a programmable asset and settles through synchronized, deterministic execution.

I’ve seen this firsthand in institutional discussions. The moment a CFO understands that tokenized deposits collapse their three-day pre-funding buffer to three seconds, the conversation changes immediately. The shift is not theoretical.

What This Looks Like on the Ground

In Manila, a corporate treasurer moving Philippine pesos (PHP) to USD no longer needs to pre-fund a nostro account days ahead of time. Funds stay in PHP until execution. Capital that once sat immobilized becomes available for payroll, working capital, or short-term financing.

Multiply this across every treasury desk in Southeast Asia. We’re not talking about a few million dollars in freed liquidity. We’re talking about tens of billions returning to productive use instead of sitting frozen in settlement buffers.

Micro decisions around pre-funding produce macro effects. When treasurers hold their home currency until execution, global institutions collectively unlock billions of dollars that used to sit idle.

Why This Doesn’t Look Like DeFi

Institutional onchain FX doesn’t use AMMs, permissionless access, or retail flow. Pricing comes from banks. Liquidity comes from regulated institutions. Participants operate inside controlled environments.

DeFi reimagines trading. Institutional onchain FX reimagines settlement. They address different problems for different users.

The Liquidity Layer Still Matters

Atomic settlement protects the trade, but it doesn’t create liquidity. FX still depends on deep reserves, market makers, and access to real-time gross settlement (RTGS) systems. What changes is deployment. Liquidity becomes dynamic instead of static.

A treasurer in Singapore no longer needs to idle 50 million dollars in a USD account for three days. The equivalent trade can settle in three seconds with no capital locked in advance.

Tokenized deposits turn static liquidity into fluid liquidity.

The Settlement Layer Meets the Asset Layer

Atomic FX proves the thesis.

Tokenized deposits are the programmable representation of bank money. They become the native asset of the new settlement layer. When every major currency exists as a composable token on shared infrastructure, atomic settlement becomes the default, not the exception.

Together they reshape how global money moves:

• Atomic PvP removes settlement risk
• Tokenized deposits remove pre-funding
• Shared ledgers remove fragmentation
• Programmable conditions remove manual workflows
• Interoperable networks remove corridor friction

The result isn’t a new DeFi experiment. It’s a new global settlement fabric.

Where This All Leads

FX has lived with settlement risk for 50 years. Entire infrastructures were created to buffer against it because institutions assumed there was no alternative. Atomic settlement removes that assumption.

Once a core risk becomes optional, markets eventually stop tolerating it. Atomic FX doesn’t optimize the status quo. It rewrites it. And tokenized deposits are the programmable money that make that rewrite feasible.

Institutional onchain FX is the new settlement layer.
Tokenized deposits are the native asset of that layer.
Together they form the foundation of the next global money movement stack.

If this becomes the default by 2027, what happens to the trillion-dollar infrastructure built to manage settlement risk?