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The Federal Reserve Bank of Atlanta piqued the interest of the crypto community with a recent post in its Policy Hub series on the impact of Web3 on financial services. The 17-page article by Kristin Parlor, a professor at UC Berkeley Haas School of Business, is intended as a basic text and deserves attention for its comprehensiveness.
The document begins with a discussion of the blockchain, explaining that “data is sorted and stored in specific locations called ‘wallets’ or ‘addresses’. After providing the necessary information, Parlor looks at decentralized finance (DeFi) and financial infrastructure.
Parlor mentions the regulatory issues of decentralized autonomous organizations (DAOs) that have no “obvious legal entity” to interact with. Moreover:
“The darker side of using tokens as collateral is that they create interconnections between different protocols, making it difficult for regulators to assess or understand systemic risk.”
Parlour is replete with trademarked lending protocols and stablecoins.
According to Parlor, the Web3 financial infrastructure provides advantages over traditional finance in terms of cost and speed of transactions. Trade finance can be significantly improved, for example by reducing costs throughout the supply chain.
Related: Ripple Acquires Swiss Blockchain Custody Company Metaco for $250M
The paper touches on central bank digital currency (CBDC) as it discusses foreign currency and also looks at the recently launched Mariana project, which is trying to apply DeFi protocols to foreign currency. Parlor mentions Stellar and Ripple and describes the Ripple XRP (XRP) token as “conceived as an international payment instrument or coin for wholesale settlements.”
Ripple has attracted a lot of attention with its deals with states like Montenegro to develop CBDCs. There have been many rumors about the plans of the US Federal Reserve to introduce a CBDC, which the Fed has not confirmed. Parlor does not disclose any plans of this type or what the Fed is thinking about using XRP for any purpose.
The Atlanta Fed released a report re: Web3 & finance that mentions #Ripple. They describe #XRP as an “international payment medium or wholesale settlement coin.” “Wholesale settlement” is an interesting context. Also a brief overview of Project Mariana.https://t.co/pzazPU8zvu pic.twitter.com/2LAC74RwSR
— WrathofKahneman (@WKahneman) May 25, 2023
Ripple is also in a legal dispute with the Securities and Exchange Commission over the status of XRP as a security.
In addition, Parlor discusses tokenized bank deposits, a concept being promoted by the USDF consortium whose CEO Robert Morgan recently spoke to the US House of Representatives about the technology, calling it a “third way” between traditional finance and DeFi.