On-Chain Foreign Exchange and Cross-Border Payments

26 Pages Posted: 20 Jan 2023 Last revised: 24 Jan 2023

See all articles by Austin Adams

Austin Adams

Uniswap Labs

Mary-Catherine Lader

Uniswap Labs

Gordon Liao

Circle Internet Financial

David Puth

Circle Internet Financial

Xin Wan

Uniswap Labs

Date Written: January 18, 2023

Abstract

This paper studies the use of distributed ledger technologies in the trading and settlement of foreign exchange (FX) on public blockchains as well as use cases in international payments. We compare the traditional trading and settlement of FX with blockchain-based implementations using payment stablecoins and automated market making protocols. Using public blockchain data, we quantify the liquidity, stability, and transaction costs of on-chain FX transactions in early adoption. We find consistency between on-chain FX exchange rate and those observed through traditional trading venues and stable on-chain liquidity throughout all times of the day and weekends. Our estimates suggest that on-chain FX can reduce the cost of remittance by as much as 80 percent. We also discuss potential opportunities for financial inclusion, applications in small and medium-sized enterprises and corporate contexts, as well as barriers to further adoption and relevant policy considerations.

Keywords: foreign exchange, automated market maker, blockchain, distributed ledger technology, tokenized cash, financial stability

Suggested Citation

Adams, Austin and Lader, Mary-Catherine and Liao, Gordon and Puth, David and Wan, Xin, On-Chain Foreign Exchange and Cross-Border Payments (January 18, 2023). Available at SSRN: https://ssrn.com/abstract=4328948 or http://dx.doi.org/10.2139/ssrn.4328948

Austin Adams (Contact Author)

Uniswap Labs ( email )

NY 10012
United States

Mary-Catherine Lader

Uniswap Labs

Gordon Liao

Circle Internet Financial ( email )

Boston, MA

David Puth

Circle Internet Financial ( email )

Xin Wan

Uniswap Labs

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