Deviation-Aware Algorithmic Settlement on Permissionless Ledgers: Global Balancing vs. Participant Splitting Mechanisms for Multi-Party Asset Exchange

• Ujjwal Yadav

  Author

This paper proposes two novel algorithmic settlement mechanisms specifically designed for distributed ledger technology (DLT) environments, addressing the fundamental problem of efficiently settling imbalances between forecasted and actual transaction volumes in decentralized peer-to-peer asset markets. Unlike centralized settlement architectures, blockchain-based settlement requires mechanisms that reward honest participation and mitigate strategic forking incentives while maximizing net surplus for all participants. The Global Balancing Settlement (GBS) mechanism approaches settlement through collective deviation compensation, wherein individual participant imbalances are absorbed into a globally balanced pool with adjusted settlement rates, improving outcomes for the entire microsystem. The Splitting Settlement (SS) mechanism employs a stratified approach that partitions participants into groups with contribution-weighted imbalance coefficients, distributing settlement costs proportionally to deviation magnitude. Both mechanisms are formalized as deterministic pseudocode algorithms embedded as immutable stored procedures within smart contracts, enabling automated, trustless execution at the blockchain protocol layer. Empirical evaluation across 14 distinct scenarios demonstrates that GBS achieves 4% - 15% improvement in participant encashments and payments compared to classical pairwise settlement, with gains scaling non-linearly with deviation magnitude. SS provides modest 2% - 6% gains under small deviations but diminishes rapidly as imbalances increase, revealing mechanism performance boundaries critical for practical deployment. The paper establishes implementation guidelines for integrating these mechanisms into permissionless blockchain architectures, with explicit consideration of smart contract encoding, transaction finality, and consensus protocol compatibility for real-time T+0 settlement environments.

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