  In this paper, we construct a decentralized clearing mechanism which
endogenously and automatically provides a claims resolution procedure. This
mechanism can be used to clear a network of obligations through blockchain. In
particular, we investigate default contagion in a network of smart contracts
cleared through blockchain. In so doing, we provide an algorithm which
constructs the blockchain so as to guarantee the payments can be verified and
the miners earn a fee. We, additionally, consider the special case in which the
blocks have unbounded capacity to provide a simple equilibrium clearing
condition for the terminal net worths; existence and uniqueness are proven for
this system. Finally, we consider the optimal bidding strategies for each firm
in the network so that all firms are utility maximizers with respect to their
terminal wealths. We first look for a mixed Nash equilibrium bidding
strategies, and then also consider Pareto optimal bidding strategies. The
implications of these strategies, and more broadly blockchain, on systemic risk
are considered.
