The Federal Reserve Bank of Atlanta has piqued the interest of the crypto community with a recent publication in its Policy Hub series on the implications of Web3 for financial services. The 17-page paper by Christine Parlour, a professor at the University of California, Berkeley Haas School of Business, is intended as a basic text and is noteworthy for its completeness.
The paper begins with a discussion of blockchains, explaining that “data are sorted and stored in specific locations called ‘wallets’ or ‘addresses.’” After providing the necessary background, Parlour looks at decentralized finance (DeFi) and financial infrastructure.
Parlour mentions the regulatory challenges of decentralized autonomous organizations, which do not have “an obvious legal entity” to engage with. Furthermore:
“The darker side of using tokens as collateral is that it generates interconnectedness among various protocols, which makes estimating or understanding systemic risk more challenging for regulators.”
Parlour’s discussion is rich with brand names of lending protocols and stablecoins.
Web3 financial infrastructure provides advantages over traditional finance in the cost and speed of transacting, Parlour says. Financing trade can be significantly improved through cost reductions along the supply chain, for example.
Related: Ripple acquires Swiss blockchain custody firm Metaco for $250M
The paper touches on central bank digital currency (CBDC) as it discusses foreign exchange and looks at the recently launched Project Mariana, which attempts to apply DeFi protocols for foreign exchange. Parlour mentions Ste
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Author: Derek Andersen
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