Atlanta Fed Explains Web3 Funding Including XRP ‘International Payment Medium’

The Federal Reserve Bank of Atlanta has piqued the interest of the crypto community with a recent publication in its Policy Hub series on the implications of Web3 for financial services. The 17-page paper by Christine Parlour, a professor at the University of California, Berkeley Haas School of Business, is intended as a basic text and is notable for its comprehensiveness.

The paper begins with a discussion of blockchains, explaining that “data is sorted and stored in specific locations called ‘wallets’ or ‘addresses’.” After providing some background information, Parlor looks at decentralized finance (DeFi) and financial infrastructure.

Parlor cites the regulatory challenges of decentralized autonomous organizations (DAOs), which have no “obvious legal entity” to deal with. Further:

“The dark side of using tokens as collateral is that it generates interconnectedness between different protocols, making assessing or understanding systemic risk more challenging for regulators.”

Parlor’s discussion is rich with brand names of lending protocols and stablecoins.

Web3’s financial infrastructure offers advantages over traditional financing in terms of cost and speed of transactions, says Parlour. Trade finance can be significantly improved through, for example, cost reductions in the supply chain.

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The paper touches on central bank digital currency (CBDC) as it discusses foreign exchange and takes a look at the recently launched Project Mariana attempting to adopt DeFi protocols for foreign exchange. Parlor mentions Stellar and Ripple and describes Ripple’s XRP (XRP) token as “intended as an international payment medium or wholesale currency”.

Ripple has received a lot of attention for its deals with states such as Montenegro for the development of CBDCs. There has been much speculation about plans by the US Federal Reserve to introduce a CBDC, which the Fed has not confirmed. Parlor gives no indication of plans of this type, or whether the Fed is considering using XRP for any purpose.

The Atlanta Fed released a report on: Web3 & Finance which stated #Ripple. They describe #XRP as an “international payment medium or currency for wholesale settlement”. “Wholesale settlement” is an interesting context. Also a brief overview of Project Mariana. pic.twitter.com/2LAC74RwSR

— WrathofKahneman (@WKahneman) May 25, 2023

Ripple is also in a legal dispute with the Securities and Exchange Commission over XRP’s status as a security.

Additionally, Parlor discusses tokenized bank deposits, a concept promoted by the USDF Consortium, whose CEO Robert Morgan recently told a U.S. House of Representatives hearing about that technology, describing it as a “third way” between traditional finance and DeFi.

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