Banks Testing CBDCs with Curve Finance Products
According to the latest report from the Bank for International Settlements (BIS), products from decentralized finance (DeFi) protocols could potentially support the multi-trillion-dollar foreign exchange market in the future.
Research units from BIS, Banque de France, the Monetary Authority of Singapore, and the Swiss National Bank are exploring how blockchain technology can be integrated with high-volume interbank payments for Central Bank Digital Currencies (CBDCs).
The report suggests that this integration could enable payment and foreign exchange transactions to be processed in a single step, thereby reducing credit and settlement risks. BIS's report also envisions that DeFi could support traditional finance in the coming years.
Currently, only 11 countries have launched CBDCs, according to data from the Atlantic Council. However, notably, 19 out of the 20 G20 nations are in the "active" phase of developing CBDCs.
This report comes at a time when the EU has proposed developing a digital version of the Euro. Proponents argue that CBDCs could make payments faster and more cost-effective. However, critics contend that this could be an excessive control move by governments over this new technology.
BIS researchers have reportedly used a test network on Ethereum to trade digital Euros, Swiss Francs, and Singapore Dollars. Notably, the protocol chosen for this experiment was Curve. Currently, Curve Finance is one of the largest decentralized exchanges in the market, with $800 million in volume processed over the past seven days.
Michael Egorov, the founder of Curve Finance, stated that using a DEX to trade cross-border CBDCs is a straightforward task. He added:
"They have taken the time to understand it, which is very exciting. DeFi is a perfect testing ground for mass-market stablecoins. It is a tool that has been tried and tested, mitigating risks in various ways."
"They can perform most of the tasks that a skilled blockchain developer can," Egorov remarked, expressing his admiration for the technology and knowledge of the research team.
The report also emphasizes that these are merely experiments. This does not imply that the researchers endorse DeFi or Curve. Additionally, the participating countries in this study are not obligated to issue their versions of CBDCs.
