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News/Central Banks Leverage DeFi to Master Cross-Border CBDC Transactions

Central Banks Leverage DeFi to Master Cross-Border CBDC Transactions

Van Thanh Le

Sep 29 2023

9 months ago3 minutes read
Robot sorting virtual CBDC and DeFi coins

Central Bank Digital Currencies (CBDCs) and Decentralized Finance (DeFi)

In the innovative world of blockchain technology, a pioneering venture known as Project Mariana recently made sizable ripples. Operated by the well-regarded Bank for International Settlements (BIS), the endeavor sought insight into the mechanics and implications of wholesale CBDCs.


Digging into Project Mariana's Roots

Gavel beside tablet with CBDC icon.webp

Project Mariana was a multinational venture that saw the central banks of France, Singapore, and Switzerland join hands under the BIS umbrella. The project's primary interest revolved around hypothetical versions of the Swiss franc, euro, and Singapore dollar. 

The team harnessed the power of automated market makers (AMMs) to test the cross-border trading and settlement of these wholesale CBDCs.


Lessons from Decentralized Finance (DeFi)

One cannot overstate the influence of DeFi on Project Mariana. Using the bedrock elements of DeFi, the pilot deployed novel techniques utilizing AMMs. The BIS Innovation Hub postulated that DeFi could reshape the future of financial market infrastructures. 

The project leaped on the public Ethereum Sepolia testnet and Curve Finance's smart contracts, making use of the latter's robust total value locked, measured at over $2.1 billion as of September 28, 2023, as per cryptocurrency charts.


Pursuit of Market Efficiency Amidst Risks

Diverse group discussing CBDCs and DeFi.webp

A dual-purpose objective underscored Project Mariana. On the one hand, the venture was eager to explore whether AMMs could drive market efficiency. On the other hand, they were curious to see if these innovations could decrease the traditionally high settlement risk associated with cross-border trading. 

Notably, the report inferred an inclination towards the positive, stating that it is feasible to exchange wholesale CBDCs across borders using AMMs. Yet, the researchers highlighted the infancy of DeFi technology, underlining a need for more comprehensive research and focused experimentation.


CBDCs: A Matter of Public and Legislative Concern 

Cryptocurrency enthusiasts keenly followed the unfolding legal narrative around CBDCs in early 2023. February saw a strong pushback against CBDCs, culminating in a proposed anti-CBDC bill: the CBDC Anti-Surveillance State Act. 

Pro-crypto Congressman Tom Emmer initiated it, and the legislation aimed to prevent the Federal Reserve from digitizing the dollar. The proposal found support among the Republican cadre, giving it significant weight in the legislative process.

Noteworthy public figures also raised concerns around CBDCs. Robert Kiyosaki, author of the best-selling 'Rich Dad Poor Dad,' warned of privacy loss through CBDCs. He urged his followers to invest in Bitcoin, gold, and silver to ward off this potential intrusion. 

Similarly, Robert F. Kennedy Jr., running for the presidency as a Democrat, cautioned against the potential "financial slavery and political tyranny" resulting from a CBDC rollout.


Pioneering a New Financial Future

As Project Mariana winds down, the implications of its findings linger on. The successful integration of DeFi elements like AMMs in CBDCs testing by the BIS and central banks signals a seismic shift in the financial industry's landscape. All eyes are now on the crypto price and Curve Finance's TVL, hinting at market optimism.

Nonetheless, socio-political factors still weigh heavily on the overall sentiment. Legislations, public concerns, and the potential risks associated with DeFi technology paint a complex picture for CBDCs. Hence, while technological progress is promising, its trajectory must be balanced against societal preferences, legislative restrictions, and potential risks.


FAQs

1. How did Project Mariana integrate DeFi innovations?

The project leveraged the DeFi innovations of AMMs using the public Ethereum Sepolia testnet and Curve Finance's smart contracts.

2. What virtues of AMMs attracted Project Mariana's interest?

The project was keen to discern whether AMMs could bolster market efficiency and simultaneously reduce the inherent settlement risk in foreign exchange transactions.

3. Following the introduction of the CBDC Anti-Surveillance State Act, what was the overall legislative response?

Spearheaded by pro-crypto Congressman Tom Emmer, the CBDC Anti-Surveillance State Act witnessed substantial support from Republicans, seeking to bar the Federal Reserve from issuing a digital version of the dollar.

4. How has public opinion responded to the proposition of CBDCs?

Public sentiment towards CBDCs has been varied, with notable figures like Robert Kiyosaki and Robert F. Kennedy Jr. cautioning against potential losses of financial privacy and heightened political oversight.

5. Considering the nascent state of DeFi technology, what is the future trajectory of CBDCs?

While Project Mariana indicated that AMMs could facilitate wholesale CBDC transactions, there is a recognized need for additional research and experimentation with DeFi technology regarding security and stability. Balancing these opportunities against legislative hurdles and public skepticism will be pivotal to the future of CBDCs.

This article has been refined and enhanced by ChatGPT.

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