The Pre-funding Paradox

Correspondent banking requires funds to sit in accounts before they are needed. That capital is not idle by accident — it is the cost of certainty in a system built around delayed settlement.

Tokenised settlement changes the trade-off. When settlement and messaging occur together, the buffer required to guarantee certainty falls.

The barrier is rarely the ledger. It is the surrounding operational, treasury and risk processes that were designed around the assumption of delay.

Institutions that want to release trapped liquidity should begin with a flow-level analysis: where the buffer sits, why it sits there, and what would have to be true operationally for it to be reduced.