The Federal Reserve Bank of Atlanta piqued the interest of the crypto community with a recent publication in its Policy Hub series on the implications of Web3 for financial services. The 17-page article by Christine Parlour, a professor at the University of California, Berkeley Haas School of Business, is intended as a basic text and is remarkable for its completeness.
Paper begins with a discussion of blockchains explaining that “data is sorted and stored in specific locations called ‘wallets’ or ‘addresses.’ After providing the necessary background, Parlor will look at decentralized finance (DeFi) and financial infrastructure.
Parlor mentions the regulatory challenges of decentralized autonomous organizations that do not have an “obvious legal entity” to engage with. further:
“The darker side of using tokens as collateral is that it creates interconnectedness between different protocols, making it more difficult for regulators to estimate or understand systemic risk.”
Parlor’s discussion is rich in lending protocol and stablecoin tokens.
Web3’s financial infrastructure provides cost and transaction speed advantages over traditional finance, Parlor says. Trade finance can be significantly improved, for example, by reducing costs within the supply chain.
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The document touches on Central Bank Digital Currency (CBDC) as it discusses foreign exchange and looks at the recently launched Mariana project, which attempts to apply DeFi protocols for foreign exchange. Parlor mentions Stellar and Ripple and describes Ripple’s XRP (XRP) token as “envisioned as an international payment medium or wholesale settlement coin”.
Ripple has gained a lot of attention for this it deals with countries like Montenegro for CBDC development. There has been much speculation about the United States Federal Reserve’s plans to introduce a CBDC, which the Fed has not confirmed. Parlor does not indicate any plans of this type or that the Fed is considering using XRP for any purpose.
The Atlantic Fed released a report on Web3 & Finance that mentions #Waving. They describe #XRP as “an international payment medium or wholesale settlement coin”. “Wholesale settlement” is an interesting context. Also a brief overview of the Mariana project.https://t.co/pzazPU8zvu pic.twitter.com/2LAC74RwSR
— WrathofKahneman (@WKahneman) May 25, 2023
Rippling is also in litigation with the Securities and Exchange Commission regarding XRP’s status as a security.
In addition, Parlor is looking into tokenized bank deposits, a concept supported by the USDF Consortium, whose CEO Robert Morgan recently described the “third way” between traditional finance and DeFi to a subcommittee of the US House of Representatives.
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