Late last year, a mind-blowing whitepaper was released by @informalinc and co-authored by the likes of @buchmanster and @socrates1024 . Cycles Protocol: A Peer-to-Peer Electronic Clearing System. I’ve been wrapping my head around it. Let’s explore “tldr style”. 1/n 🧵.

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@buchmanster 31) You can read the white paper in all it's glory here:. It's offers one of the most interesting advancements in crypto and monetary theory that I've seen in a while. Excited to see this go live! . 👀.

@buchmanster 30) At the end of the discussion, the paper re-establishes the real world use cases. Eg. Cycles could become a treasury dashboard - showing firm’s assets, overdraft facilities and payment obligations. It is migrating DeFi into real world company finances.

@buchmanster 29) Cycles provides a common language for things like payments, currencies and credit protocols. Cycles can utilise liquidity from Cosmos chains (and anywhere that bridges or uses IBC). Obligations can be discharged cross-chain and credit can be drawn from across the Cosmos.

28) Pgs 22-25. Further discussion on privacy, extensibility and economics. What sticks out here is how Cycles is a natural extension of what @buchmanster has been envisioning for Cosmos. Cosmos has always been about creating sovereign and interoperable money zones. .

27) Privacy uses “ZK + TEE Side Car”. TEEs carry out the MTCS computation. ZK proofs verify the solution. Pgs 18-20 delve into technical details. 🤓.

26) Architecture - pg 18. Tech includes:.- BFT consensus .- zkp.- TEEs.- obligation based smart contracts. More specifically….

25) Eg 2. Overdrafts with a new type of lending protocol. Alice puts up ATOM collateral and draws an overdraft loan in USDC. This debt can be repaid automatically in the form of on-chain obligations. So by being owed money, Alice can have her overdraft automatically paid off.

24) Pgs 17 / 18 go into example use cases. Eg 1. Paying a bill - rather than just send USDC, Alice declares that she owes Bob $10. The obligation is represented on-chain. The beauty here is that Bob might only accept ATOM and the protocol can solve for this if a cycle exists.

23) Extensible Credit Environment . The protocol will integrate existing assets and credit sources. It will also be able to extend new credit lines and create novel credit assets. 💳.

22) Privacy. Obligation graphs are never revealed. The MTCS algorithm must be able to execute over this private graph. 🕶️.

21) Atomic multilateral settlement is . - atomic: operations occurring simultaneously . - multilateral: a large number of participants . - settlement: in this case in an all-or-none fashion. 🧬.

21) Cycles Protocol - pg 16. The protocol is designed to execute. “atomic multilateral settlement operations in a privacy-preserving and extensible credit environment across multi-scale graphs”. 🧐 . So let’s break that down….

20) Liquidity - pg 15. Liquidity can be directly incorporated into the MTCS algo. In fact, a single cycle can be formed across two liquidity sources. This is cool as it means that no currency exchange service is needed with enough participants using multiple currencies. 😲.

19) A key insight of the paper is that adding a small amount of liquidity to the graph can result in a far greater amount of debt being cleared. The blue line shows that all debt can be cleared with only 65% of total debt liquidity injected

18) The output of MTCS is in a single operation to reduce debts and make payments to many parties. The way it does this is by finding a “cyclic structure” in the obligation graph. 🚲.

18) Graph Solving - pg 14. Now we get to the heart of the system and the graph algorithm that makes it work —>. “Multilateral Trade Credit Set-off”. Aka MTCS. This algo solves for the maximum amount of debt that can be discharged in a network of obligations and acceptances.

17) Assumption - the counterparties in an obligation and the direction of the obligation can change. It is the transfer of a liability from one party to another. 💃 ➡️ 🕺.

16) Overdraft - this doesn’t shrink the balance sheet, but creates new debts. Eg. I now owe the bank rather than Bob. Importantly, this opens up the possibility of “issuance” where new monetary units can be created. 💵 💶 💷 💴.

15) Combining set-off with assignment reduces the number of transactions. A single operation can discharge multiple debts. Participants may not even know about other participants in the graph of debts that is being cleared.