RBA CBDC Submission #1

Published in

NotCentralised

7 min readNov 2, 2022

It’s been an amazing couple of weeks for us at NotCentralised. Firstly, we’ve been engaging more in the community with our Aus DeFi Association hats on and as part of what we’re building and projects we are consulting on, we’ve had opportunities to be in various roundtables with government/regulators and the government. The discussions have been great and it’s heartening to see that they’ve been open to the education that communities and other web3 participants bring.

One of the recent roundtables was to do with the use case of a CBDC and driven by the RBA (Reserve Bank of Australia) and their Digital Finance CRC (Cooperative Research Centre). More details about this (including whitepaper) are here: https://dfcrc.com.au/cbdc/

We put in 2 submissions, the first of which we’ll share below. This was done with a variety of potential partners where the plan is that we would come together to deliver on these pilot use cases.

The goal of these use cases is to prove, ostensibly, that the creation of a CBDC will add value to the economy. The following shows some of the questions we answered with others not shown as

Trade Platform Use Case

Summary of use case (problem solved, clients/users, key benefits)

The Australian crypto ecosystem is a vibrant community of forward thinking businesses working towards a more efficient economic system. The goal of this pilot use caseis to showcase the economic value of the composability within services offered by various reputable companies within this ecosystem powered by the eAUD CBDC. We will also test the use of the CBDC as a PoR (Proof of Reserve) which means that at any time, either side of a trade can prove that whatever stablecoin is being used for trades on the platform, is backed 1 to 1 with the eAUD (and basically putting trust in the Reserve Bank of Australia). We aim to validate simple technological integration, achieved through the composability inherent in blockchain, at a fraction of the cost involved with similar workflows using non-blockchain technologies, such as web APIs and NPP.

In our opinion, an eAUD is required to offer a payment method with the lowest possible risk to the market. Bank Issued Stablecoins owners face credit risk exposures to the issuing bank unless the token is fully backed by an RBA promise, meaning that a CBDC is effectively necessary within a streamlined workflow.

Australian Participants:

ZeroCap: Web3 Wealth Manager
Hedera: distributed ledger technology provider
CANVAS: Layer 2 (L2) Network on Ethereum, designed for Finance
Herbert Smith Freehills: Law Firm
NotCentralised: Web3 Venture Studio

Our proposed RBA CBDC pilot use case has two goals, as stated above: (i) showcase the composability of blockchain technology and (ii) effectively facilitate better commerce within the Australian economy. There are numerous real-world applications built on blockchain rails that require a CBDC. For our specific use case, we propose a protocol we have built called TradeFlows.

TradeFlows is a structured and programmable payments platform, enabling transparent and secure commercial relationships. The platform is built on blockchain, allowing instant and atomic settlement of complex payment workflows with automated as well as transparent self-custody escrow facilities. A core part of TradeFlows is our AUD denominated programmable token backed by liquid collateral. This programmable token has a number of features including payment streams and settlement to composable NFTs. These features catalyse many efficiency gains within the structured finance landscape. The underlying infrastructure is Layer-C, a framework that seeks to promote elements of regulatory compliance on public blockchains through a combination of licensed issuance vehicles and open-source smart contract templates.

A more specific description of our goal with the RBA Pilot program is to measure the gain in efficiency using an eAUD CBDC, compared to using cash in traditional finance. We use examples of bilateral, risk offsetting trades via the construction industry’s supply chain — both of which are specific use cases for TradeFlows. Following discussion with industry representatives, we identified increased value across both uses by applying tools like programmed escrows and streaming payments. We improve intrinsic transparency and thus reduce risk in supply chains, by measuring the health of the individual trades between a supply chain’s counterparts, in terms of accessible and unencumbered liquidity.

The specific construction use case is of both functional and symbolic importance within the current market. Current supply-chains exhibit a lack of transparency and unfair / sub-optimal distribution of risk. These systemic issues within the supply-chain can be addressed through supply chain optimisation using blockchain. Secondly, the emblematic value of addressing a supply-chain inefficiency that hurts such a wide range of individuals, relating to both jobs and homes, is powerful.

Composable Workflows

One aspect of our pilot proposal of which we are especially proud is the demonstration of collaboration between independent corporations. Indeed, such collaboration is essential when building blockchain protocols, because the great value unlock comes from composability. Our workflow involves the following indicative roles and responsibilities:

1) Zerocap — deploy stablecoin backed by eAUD

2) TradeFlows — wraps the zerocap stablecoin and adds custom functionality

3) Canvas — onboards TradeFlows contract to L2

4) TradeFlows — builds UX for counterparts to trade / use

5) HSF provide legal analysis in relation to current legal and regulatory requirements of the use of CBDCs

Contributors

Note: These partnerships are mentioned for the purpose of this project and no commercial agreement is obligated or intended from them being mentioned

NotCentralised — NotCentralised is a venture studio focusing on web3/blockchain projects. We will perform the project management and smart contract development for the above use cases. We have already developed a working prototype for TradeFlows and Layer C protocols used above which will be needed for these examples as well as for other future, real-world use cases of decentralised commerce. Given our experience in building community (through the creation of the Aus DeFi Association), raising capital and doing smart contract and other development for the Australian web3 community, we are in a unique position to build further upon the outcomes from this pilot program.

Zerocap — Zerocap will perform the role of the intermediary that collateralises eAUD and bridges it over to the Ethereum mainnet. The team will set up an independent wallet to receive deposits from clients and other entities looking to utilise their eAUD on Ethereum. Before allowing entities to deposit their eAUD, we will ensure they have been KYC’d. Additionally, we will request an Ethereum wallet address they wish to receive bridged eAUD in. The eAUD will act as the underlying collateral for the bridged tokens which can be redeemed only with the wallet address that was provided to Zerocap. Subsequently, Zerocap will issue ERC-20 tokens, representing stableconis that are denominated by AUD.

CANVAS — CANVAS Connect is a Layer 2 (L2) Network on Ethereum, designed for Finance.

We enable instant, cheap transactions that scale to the volumes required for Traditional Finance/Web2.

We resolve the challenges of scaling this use case on the Ethereum blockchain by, simplifying Web3 integrations into manageable APIs and offering instant and cheap transactions without gas fees and surge pricing. This L2 Network provides high throughput capabilities whilst still inheriting the security and decentralisation of Ethereum. This ultimately provides security and scalability, which are important features for real-world use cases of a solution using CBDCs.

Herbert Smith Freehills — HSF, one of the world’s leading international law firms, will consider the legal and regulatory issues relating to the use of CBDCs in the context of this use case.

What is the primary reason CBDC is required for this use case? (and current payment infrastructure is not adequate)?

A key reason is the need for transparency across a multi-party chain of contracts. At present, each participant will run their own bank accounts which, quite rightly, other participants have no access to. But this lack of visibility for collateral and liquidity is what reduces confidence in long supply chains. The construction industry is a prominent example.

By pledging CBDC (or eAUD) collateral and locking it into a digital escrow account, the parties in the chain that are required to pay suppliers cannot double spend that amount, by entering multiple contracts off a thin capital base. This challenge of insufficient working capital to satisfy multiple counterparts can be avoided.