The trial included automated functions to generate markets and also provide liquidity. The interoperability of the platforms and the use of smart contracts went through a testing phase.
The Bank of France (BdF) and the Monetary Authority of Singapore (MAS) recently revealed that they have already completed new tests to set up the creation and implementation of the digital euro. In these trials, the novelty has been the decentralized finance tools, such as Automated Market Makers (AMM).
AMMs are automatic systems that allow users to compare the price between two assets. In the markets, the fluidity in exchanges is of vital purposes. This fluidity goes through the constant supply to liquidity pools.
The central bank of digital currencies (CBDCs) are now heading towards decentralized finance or DeFi, and it is marking the beginning of a new era in the crypto world. In this case, automated mechanisms will uninterruptedly permit such operations, bringing less friction, unlike what happens in the traditional financial system.
According to an official statement the MAS recently revealed, the tests consisted of simulating international transactions using various CBDCs on a private Quorum blockchain (an open-source blockchain for companies developed by JP Morgan and assigned to ConsenSys) shared between the participating countries.
Specifically, it went through a test with CBDC payments for the Singapore dollar and the euro. The evaluations also received support from Onix, the JP Morgan bank company dedicated to blockchain solutions and digital currencies.
This test is the first operation that used automated methods, like AMMs and smart contracts for market operations and liquidity management. This feature is what the DeFi allows: to facilitate financial operations through services created on the blockchain without requiring intermediaries.
In simpler words, unlike the traditional system, it will no longer depend on third parties to take part in the trade of assets and in transactions between countries.
According to the MAS, this shared network, which receives support from several CBDC, will facilitate global payments in real-time and without interruption. According to its publication, these transactions currently depend on arrangements between banks without much transparency about the rates of foreign exchange houses; Likewise, they will have to set limited hours of operation and delays in settlements due to their discordant timezones.
DeFi Came from Regulatory Wild West to now take the lead in The Central Bank Due to its Approval
This test by the Bank of France and Singapore aims at the institutionalization of DeFi. This test means that the States are now following with more attention the technologic sector and are incorporating it in their projects. Decentralized finance service developers, such as Aave, also adhered institutional clients to their projects.
The MAS publication highlights that four main achievements came from the results of this experiment. The first was to demonstrate that different cloud infrastructures allow interoperability between them. The second goal was the verification of a network in several CBDCs. This verification allowed visibility of cross-border payments without the central banks of each country losing power over their CBDCs.
The main highlight is that an automated system of liquidity pools and marketing services has entered successfully with the currency pairs included. So, “the use of smart contracts made it possible to automatically manage the EUR / SGD price in real-time based on market supply and demand,” they highlight.
By: Jenson Nuñez