Insights from a January 19, 2023, paper released by Circle and Uniswap stated that if foreign exchange markets start utilisation of decentralised finance (DeFi) protocols in place of current centralised systems, remittances’ cost could witness a reduction by “as much as 80%,” as reported by Cointelegraph.
According to Cointelegraph, the paper, titled “On-chain Foreign Exchange and Cross-border Payments,” was drafted by Austin Adams, data scientist, Uniswap, Gordon Liao, chief economist, Circle, Mary Catherine Lader, David Puth and Xin Wan. It is believed that the authorities measured the trading activity of Circle’s US Dollar Coin (USDC) and Euro Coin (EUROC) on Uniswap from July, 2022, through January, 2023. Reportedly, stablecoins USDC and EUROC entered into trading within certain basis points of exchange rates based on the wholesale forex market for their backing currencies, USD and EUR.
On the basis of information by Cointelegraph, however, researchers expressed interest in learning if usage of DeFi protocols such as Uniswap could ensure savings for participants in the forex market. So, they reportedly conducted costs’ analysis related to the traditional “correspondent banking model” of forex versus those related to DeFi forex.
Moreover, Cointelegraph noted that the authors used World Bank estimates for determination of the price of a $500 remittance completed through the global banking system. Reportedly, the authors arrived at the conclusion that the DeFi model results in users to incur different fees, including exchange commissions, DeFi trading fees, network fees and fees for transferring cash to and from an exchange.
(With insights from Cointelegraph)