BIS, 3 central banks look at DeFi technology for wCBDC FX in interim project report

Project Mariana utilizes an automated market maker to minimize settlement risk and establish a liquidity pool instead of relying on order books.

The Bank for International Settlements (BIS) Innovation Hub, in collaboration with the central banks of France, Singapore, and Switzerland, has published an interim report on Project Mariana. The project focuses on the use of wholesale central bank digital currency (wCBDC) in tokenized foreign exchange trading. It serves as a proof-of-concept to address concerns regarding credit, settlement risk, and interoperability.

Specifically, the project explores the feasibility of an international FX interbank market using wCBDCs on a blockchain-based network by examining automated market makers (AMMs), token standards, and network bridges.

AMMs are smart contracts used in decentralized finance that facilitate trading and settlement of tokenized assets in a single step, thereby reducing risk. To achieve this, technical specifications need to be developed for both the wCBDCs and the AMMs themselves, as well as the bridges that connect the international network with domestic platforms.

The proposed design of the AMM includes a liquidity pool and a bonding curve. The bonding curve determines the price function for the traded assets, while the liquidity pool replaces traditional order books by matching buyers and sellers. Commercial banks participating in the project contribute to the liquidity pool by providing various currencies. Access to the trading system is controlled by whitelists maintained by the central banks.

Another liquidity approach can be observed in Project Cedar Phase II x Ubin+, a collaboration between the Monetary Authority of Singapore and the Federal Reserve Bank of New York. This project utilizes a “vehicle currency” for trades involving non-tokenized currencies with varying levels of liquidity.

Project Mariana was initiated in November and has released its interim report as scheduled. A final report is expected to be published by the end of the year.

source