DeFi Weekly #6 — Central Bank Digital Currencies
Earlier this week, The Treasury and Bank of England announced a joint task force to evaluate the creation of a Central Bank Digital Currency (CBDC) to future-proof pound sterling against cryptocurrencies and improve the payments system.
A CBDC is a digital token backed by a central bank and recognized by the law as a legal ledger. Advances in Distributed Ledger Technology (DLT) or Blockchain technology and a decreasing amount of cash usage have prompted central banks worldwide to explore centralized digital currencies.
The concept of CBDC has been around for many years, with research starting as early as 2013. According to Bank for International Settlement (BIS), over 70% of central banks surveyed are actively exploring CBDCs.
China is leading the race with pilot platforms released for the general public. China’s adoption of a centralized digital currency will provide a path for other central banks to follow — leading to a new global payments infrastructure.
Will the rise of CBDCs threaten cryptocurrencies? Let us know your thoughts.
DeFi Stats:
Top DeFi updates
- MakerDAO Will Soon Hold Real-World Assets as Collateral
- 1inch Network Integrates The Kyber DMM Protocol
- Chainlink 2.0 whitepaper introduced
- PancakeSwap’s Total Value Locked Overtakes Uniswap’s
- USDT on the Tron network surpasses Ethereum
DeFi Dose: Arbitrage
Arbitrage is a trading strategy where an asset is purchased in one market and (simultaneously) sold in another market at a higher price, making a profit from the price difference.
The concept of arbitrage trading is familiar across financial products (stocks, bonds, etc.) and is relatively risk-free. While many types of arbitrage strategies exist, below are the most commonly used in crypto.
- Exchange arbitrage: One of the most common methods where a trader purchases a token in one exchange and sells it on another at a higher price.
- Triangular arbitrage: In this method, a trader picks three tokens and maximizes profit by trading between them on the same exchange. Imagine an opportunity involving BTC, BNB, and ETH; the trader sells the BTC for BNB, uses the BNB to buy ETH, and then sells ETH for BTC. In the end, owning more BTC than before.
- DeFi arbitrage: This method makes use of DeFi protocols for arbitrage opportunities to maximize profit. Several platforms, like Yearn.finance, do this automatically and are actively used.
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