DeFi and Blockchain Tech Could Solve $2.2 Trillion FX Risk Problem

• A research paper by Circle Internet Financial and Uniswap Labs suggests that DeFi and blockchain technology could solve a $2.2 trillion FX risk problem and reduce cross-border remittance costs by $30 billion a year.
• The paper states that on-chain FX can offer faster and more affordable transaction processes, greater liquidity and stability.
• The paper will be released in Davos for a World Economic Forum event hosted by Circle on Thursday.

Digital-assets firms Circle Internet Financial and Uniswap Labs have released a research paper that suggests that DeFi and blockchain technology could solve a $2.2 trillion foreign-exchange (FX) risk problem and reduce cross-border remittance costs by $30 billion a year.

Every day, around $2.2 trillion in FX transactions carry a risk that one side of the agreement won’t meet its obligations. This is a major financial-stability concern for regulators, but the new paper from Uniswap Labs and Circle’s chief economist, Gordon Liao, claims that distributed ledger technology could provide a solution. The 20-page paper will be released in Davos for an event hosted by Circle on Thursday in conjunction with the World Economic Forum.

The paper notes that on-chain FX can offer faster and more affordable transaction processes than traditional solutions, as well as greater liquidity and stability. It also states that DeFi solutions could help to reduce the risk of large-scale FX transactions by providing a system for simultaneous settlement.

Uniswap Chief Operating Officer Mary-Catherine Lader commented on the paper, saying “DeFi and blockchain technology have the potential to revolutionize the way FX markets operate, and our paper demonstrates how these technologies can be leveraged to reduce systemic risk and create a more efficient and liquid market.”

The paper’s authors hope that the research will help to shape the future of the FX markets and bring more stability to the financial system. They also hope that it will encourage regulators to embrace new technology solutions that could help to reduce risk and increase efficiency in the FX markets.