Traders in the $7.2 Trillion Currency Market Are Courting DeFi Fans

By CoinUnited.io Research Team

6 Feb 2023

2 min read

Decentralized finance advocates continue to target the $7.2 trillion global currency market despite the cryptocurrency industry experiencing a crisis of trust.

Traders of fiat currencies are being courted by researchers behind one of the largest decentralized financial markets, who claim that transferring them to blockchain will reduce the cost of international transfers by 80% and remove settlement concerns.

Using stablecoins and DeFi protocols to send money instead of traditional financial intermediaries could save users of the $550 billion global remittances industry up to $30 billion per year, according to a paper published online by scientists and executives from Uniswap Labs and Circle Internet Financial.

DeFi, a form of financial technology built on distributed ledgers like to those used for cryptocurrencies, eliminates the need for intermediary institutions. With the ability to move money across digital wallets, it is accessible to anybody with an internet connection. But the mayhem that followed the demise of stablecoin TerraUST and its sibling token Luna, as well as the bankruptcy of Sam Bankman-FTX Fried's company last year, have damaged its reputation.

The paper's authors claim that a structural change is overdue in the world's largest market for currencies, the conventional flow of currency. They assert that transferring all foreign exchange to DeFi platforms would close the settlement gap, or the chance that one party to a deal would fail to deliver the currency due.

According to the most recent data from the Bank for International Settlement, the daily value of transactions with a failure of one of the counterparties increased to $2.2 trillion by April 2022 from $1.9 trillion three years earlier. Currency market settlement risk, according to the BIS, may threaten the integrity of the global financial system.

In the DeFi paper, it was said that "on-chain FX trading and settlement utilizing DeFi technology offers the ability to address many of the difficulties encountered by the traditional FX market, such as poor market speeds, high prices, and settlement risks." David Puth, a former top executive of the global settlement utility CLS, which is regulated by the US Federal Reserve, contributed to the paper's findings, lending credibility to its conclusions. Austin Adams, Mary-Catherine Lader, and Xin Wan were the other authors.

The authors have made a significant effort to argue that stablecoins, digital currencies created to maintain a generally stable price, will improve the efficiency of existing monetary systems. Uniswap Labs is a DeFi market place, and Adams and Wan are research scientists there. Lader is the company's Chief Operating Officer. Stablecoin issuer Circle counts Puth as a senior advisor.

The paper did, however, provide some "quite fascinating" concepts and highlighted the "huge interest from the FX community" in digital assets, according to Stephane Malrait, head of the ACI Financial Markets Association, an organization representing key dealers in the currency and money markets. However, a significant change won't occur immediately.

The adoption of stablecoins in international payment systems is still facing high barriers, notwithstanding central banks' experiments. Adoption of the technology is delayed because to a lack of legislative clarity, hacks and theft in the larger DeFi area, and the absence of user-friendly ways to engage with these money pools.

According to Malrait, "The TradFi market structure is still quite remote from the technology employed in DeFi," and it would be difficult and time consuming to migrate the global currency ecosystem to a new infrastructure.

Using stablecoins and DeFi protocols to send money instead of traditional financial intermediaries could save users of the $550 billion global remittances industry up to $30 billion per year, according to a paper published online by scientists and executives from Uniswap Labs and Circle Internet Financial.

DeFi, a form of financial technology built on distributed ledgers like to those used for cryptocurrencies, eliminates the need for intermediary institutions. It's accessible to everyone with an internet connection and allows users to move funds across electronic wallets. But the mayhem that followed the demise of stablecoin TerraUST and its sibling token Luna, as well as the bankruptcy of Sam Bankman-FTX Fried's company last year, have damaged its reputation.

The paper's authors claim that a structural change is overdue in the world's largest market for currencies, the conventional flow of currency. They assert that transferring all foreign exchange to DeFi platforms would close the settlement gap, or the chance that one party to a deal would fail to deliver the currency due.

According to the most recent data from the Bank for International Settlement, the daily value of transactions with a failure of one of the counterparties increased to $2.2 trillion by April 2022 from $1.9 trillion three years earlier. Currency market settlement risk, according to the BIS, may threaten the integrity of the global financial system.

In the DeFi paper, it was said that "on-chain FX trading and settlement utilizing DeFi technology offers the ability to address many of the difficulties encountered by the traditional FX market, such as poor market speeds, high prices, and settlement risks."

David Puth, a former top executive of the global settlement utility CLS, which is regulated by the US Federal Reserve, contributed to the paper's findings, lending credibility to its conclusions. Austin Adams, Mary-Catherine Lader, and Xin Wan were the other authors.

The authors have made a significant effort to argue that stablecoins, digital currencies created to maintain a generally stable price, will improve the efficiency of existing monetary systems. Uniswap Labs is a DeFi market place, and Adams and Wan are research scientists there. Lader is the company's Chief Operating Officer. Stablecoin issuer Circle counts Puth as a senior advisor.

Even so, the paper presented several "quite fascinating" concepts, and Stephane Malrait, head of the ACI Financial Markets Association, which represents key dealers in the currency and money markets, acknowledged the "great interest from the FX community" in digital assets. However, a significant change won't occur immediately.

The adoption of stablecoins in international payment systems is still facing high barriers, notwithstanding central banks' experiments. Adoption of the technology is delayed due to a lack of legislative clarity, hacks and theft in the larger DeFi area, and the lack of user-friendly ways to engage with these money pools.

Malrait remarked, "The TradFi market structure is still quite remote from the technology employed in DeFi. It would be difficult to transition the global currency ecosystem to a new infrastructure, and the acceptance of new technology may take years."

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