What Is a ‘Clearinghouse’ and How Does a Smart Contract Replace Its Function?

A clearinghouse is a central intermediary in traditional finance that validates and settles transactions, guaranteeing performance and managing counterparty risk. A smart contract replaces this by acting as a self-executing, decentralized escrow agent.

It automatically verifies conditions, holds collateral, and distributes assets, eliminating the need for the central authority's trust and operational overhead.