Extending PvP access with onchain FX

Payment-versus-payment (PvP) is the strongest mainstream mechanism the market has for reducing principal risk in FX settlement. It reduces the core exposure that sits between trade agreement and settlement, when one party can be left exposed after delivering its leg. That matters because in FX, agreeing on a price is not the end of the job. The risk that drives limits, liquidity buffers, and operational workarounds sits in the gap between trade agreement and settlement. FX is one of the biggest markets in the world, so any residual settlement exposure, and the controls banks build around it, remains a meaningful part of how the system actually operates.

We have seen recently that the market is pushing toward more local currencies and more continuous activity across time zones, raising the importance of settlement infrastructure as it determines how long a bank stays exposed after an FX trade is made. Stronger 24/7 settlement infrastructure and counterparty risk management also reduces the need to hold excess liquidity just to stay compliant and operationally safe. This is where we see interest from major banks. Onchain FX can extend PvP-like settlement controls across more hours, more corridors, and a wider range of counterparties than traditional infrastructure reaches in practice.

Most FX settlement still happens outside PvP

PvP is powerful, but its reach is not universal. Currency coverage is limited, only operates during certain time windows, and participation is concentrated amongst the largest financial organizations, which means a meaningful share of real-world FX still settles outside PvP-grade infrastructure. The largest and best-known PvP utility, CLSSettlement, covers just 18 currencies. The BIS 2025 Triennial Survey found that in April 2025, just over a third of daily FX settlement ran through PvP (36%, or $5.2 trillion), while more than $1.4 trillion a day still settled on a gross bilateral basis, fully exposed to principal risk. Even among the currency pairs CLS covers, only 40% of settlement runs through PvP. That limitation matters because bank activity and client needs do not neatly map to a footprint of narrow, high-liquidity corridors.

For banks operating outside these standardized corridors, “outside PvP” has added risk. Principal risk is managed through bilateral credit and compensating controls rather than through a settlement mechanism that enforces both legs together. The practical toolkit becomes some mix of counterparty limits, intraday credit management, and operational processes designed to reduce the probability and impact of a failed exchange.

How onchain FX extends PvP-like settlement control

This is where onchain FX becomes interesting for banks. The core idea is that stablecoins plus smart contracts can extend PvP-like settlement control to a broader set of counterparties. Simply put, smart contracts are self-executing programs on a blockchain that apply predefined rules, so settlement can be structured to release funds only when agreed conditions are met. And because stablecoins and smart contracts operate natively on the internet, they run 24/7 by design, in contrast to Real-Time Gross Settlement (RTGS) systems that are constrained by operating windows.

In onchain FX, stablecoins act as the settlement assets and a smart contract can enforce conditional exchange so that each leg completes only if the other leg is also satisfied; if the conditions are not met, the exchange does not complete and funds revert. The objective is to reduce reliance on sequential leg settlement and manual compensating processes to manage principal exposure after a trade is agreed.

It is important not to over-claim: onchain FX does not eliminate the need for governance, compliance, or risk appetite decisions. What onchain FX can do is offer similar settlement controls in an always-on environment, potentially across more hours and a broader set of currencies and counterparties than traditional PvP frameworks reach in practice.

Onchain FX creates an opportunity to make PvP-like settlement controls available across more of the conditions where banks manage risk and liquidity: more hours, more corridors, and a wider range of counterparties. Large banks can grow reach, making it practical to serve new markets and enterprise customer segments that are operationally heavy under today’s constraints. For smaller and regional banks, it is a path to stronger settlement control in the long tail and reducing reliance on cumbersome bilateral agreements. Over time, the biggest benefit is reach. 

Onchain FX settlement functionality makes it more practical to serve more corridors and more counterparties without loosening risk posture. Start where your bank is already experiencing high friction to reach new markets and customers, and where bilateral agreements and cutoffs force conservative limits. Then evaluate how always-on PvP-like settlement controls (onchain FX) could make your FX and payments stack available in more corridors and more hours, without changing the risk posture your Treasury and Risk teams require. This is the gap we built StableFX to close: an onchain FX engine on Arc that settles select stablecoin pairs 24/7, using smart contracts to release both legs together or neither. If that's worth a closer look, connect with our team.