As the overall crypto market strives to make a recovery since the beginning of the year – the world of DeFi or decentralized finance, which finally exploded between the years 2021-22, is becoming more and more mainstream and well known. While current financial solutions work for the time being, there could be improvements that DeFi can usher in and bring about a lot of positive change. This is about one such solution that DeFi can propose and is trying to work on.
For context, every day about $2.2 trillion work of foreign exchange (FX) transactions all across the world carry a risk. The risk finally comes down to the ‘yet-to-be settled’ side of any agreement on the global scale – that won’t meet their obligations. Essentially, whenever one party has delivered goods or services and the other side is yet to process the payment for the same or other thing in a similar line.
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To solve that, a new paper from Circle Internet Financial and decentralized exchange (DEX) Uniswap Labs found in its research that a distributed ledger could potentially eliminate that risk with the solution of simultaneous settlement. How? Well, several researchers from both these blockchain based digital finance companies, which include Uniswap’s Chief Operating Officer (COO) Mary-Catherine Lader and Circle’s chief economist, Gordon Liao – contend that blockchain and crypto based solutions can be the answer to this major ongoing financial stability concern for regulators.
This 20-page paper was released at the World Economic Forum that is currently happening in Davos, Switzerland and this is just one conclusion among many in that research paper.
“On-chain FX can offer faster and more affordable transaction processes, as well as greater liquidity and stability,” the paper concludes.
The researchers in the report also mention that cross-border remittances, i.e. money that people send across international borders – could hugely benefit from a drop in costs involved in the same. Remittances performed through the blockchain holds the potential to cut these costs by over 80%! Historically too, sending money to people in other countries has been one of the biggest use cases for cryptos and the paper said that these lower costs could very well translate into over $30 billion a year in savings for these people.
This paper comes amid extremely poor sentiments regarding the world of crypto post a series of scams and meltdowns in 2022 and an ongoing bear market. The industry as a whole has suffered a lot of reputation damage due to the aforementioned reasons too. Due to these reasons, regulators and traditional financial companies have been reluctant to show any enthusiasm towards this new technology and the various solutions it proposes.
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This is a report that comes from two very well known and reputable firms in the crypto and blockchain industry, the first being Uniswap – which is one of the largest decentralized exchanges (DEX) for cryptos in the market and Circle, which issues USDC, the second largest stablecoin by market capitalization, after Tether’s USDT. They have been making headlines recently because they have been moving their reserves for the USDC stablecoin into a BlackRock fund overseen by the Securities & Exchange Commission (SEC) with the ultimate objective to get the fund into the Federal Reserve’s reverse repo program.
Sourced from CoinDesk.