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A recent industry paper found that DeFi can reduce costs and
enhance transparency in foreign exchange (FX) markets. The paper
concludes that on-chain FX, along with improved fiat-to-stablecoin
conversion and improved user-friendly interfaces, enables faster
and less costly transfers. The paper reportedly estimated that DeFi
rails could reduce international money transfer costs by up to 80
percent. According to the paper, additional benefits of on-chain FX
exchange and settlement include (1) eliminating settlement risk
when one side of the transaction settles without the other; (2)
reducing risks of benchmark rigging and market manipulation; (3)
facilitating liquidity and market depth, and reducing risk of flash
crashes; and (4) improving payments with nearly instantaneous and
low-cost cross-border settlements.
In other news, this week the National Australia Bank announced
that it will launch a stablecoin to be backed by the Australian
dollar on the Ethereum and Algorand blockchain networks. This is
reportedly the country’s second major financial institution to
launch a stablecoin, after Australia and New Zealand Bank minted
A$DC last year. The stablecoin is expected to allow customers to
settle transactions in real time on the blockchain using Australian
dollars. Australia reportedly pledged to “modernize the
country’s financial system and update its regulatory framework
to crypto and other innovations” under Prime Minister Anthony
Albanese, and the country’s central bank is anticipating its
pilot central bank digital currency (CBDC) project to be completed
by mid-2023.
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