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The Digital Euro Association (DEA) published a paper that dives into the potential impact of tokenized deposits (TDs) on financial stability, monetary policy, Anti-Money Laundering (AML) and Know Your Customer (KYC) processes, and privacy considerations. The paper offers comprehensive primer into the potential of TDs, alongside considerations on how they could complement and co-exist with other forms of digital money.

Like all technological breakthroughs, NFTs carry not just great promise, but the potential for abuse and a host of complex and novel IP, consumer protection and other legal issues. This post provides a quick primer on NFTs, answers some of the big IP questions about NFTs, and flags some of the key issues that we've been tackling in the NFT space.

The IMF published a high-level primer on key aspects of popular blockchain consensus mechanisms, aimed at financial supervisors at central banks, regulatory authorities, and government departments. It focuses specifically on how such mechanisms may impact the mandates of supervisors and policymakers when deployed in financial services markets. It could also help inform IMF staff on policy development and technical assistance related to crypto assets, stablecoins, and blockchains.

This Banque de France paper documents the benefits, costs, difficulties and risks associated with potential wholesale and retail CBDC implementation. It concludes that the need for retail CBDC, which raises the thorniest issues, seems less pressing in developed economies.

To prepare for the introduction of CBDC in early 2022, a pilot CBDC solution will be tested in Bank of Jamaica's Fintech Regulatory Sandbox between May 2021 and December 2021.

"Central banks across the world have started exploring Central Bank Digital Currency ("CBDC"). In a recent survey by the Bank of International Settlements[1], 80% of the 66 banks surveyed were engaged in research and pilot projects related to CBDC, including Canada,[2] USA[3] and Singapore[4]. In fact, as of May, 2020 China has started testing its digital Yuan (Digital Currency Electronic Payment)[5] in four of its states as a part of its attempts to achieve tech-supremacy. Before we dive any deeper, let's first understand what a CBDC is."

In many emerging economies, digital financial services markets are limited to one or two major providers, reducing innovation, customer choice and potentially facilitating monopolistic or cartelistic behavior. In this primer, CGAP proposes regulatory levers that policy makers can use to promote more competition.

Bitcoin has created a new level of transparency and auditability previously unknown in financial and economic data. Since all Bitcoin transactions are recorded on a public ledger, we can analyze activity in a relatively comprehensive fashion. By creating metrics and analytics using data straight from the Bitcoin blockchain, we can gain novel insights into investors' behavior that are not possible with traditional, non-crypto assets.There are a variety of different on-chain metrics that we can use to gauge bitcoin market cycles and signal when price is nearing local maximums and minimums.

"In this post I covered why interoperability is growing in importance, broke down the main types of interoperability and gave a brief high-level introduction to some of the key projects that are working to make blockchains communicate as effectively as possible. Each approach that I went through carries a different set of capabilities and limitations."

"The CEO of crypto lending platform Celsius Network has said that Tether lends out new USDT stablecoins in return for cryptocurrencies - a claim that calls further into question Tether's founding promise that it uses only real dollars to issue its tokens. Celsius borrows USDT from Tether in return for well-known cryptocurrencies. New USDT is issued for such loans and later destroyed when the loan is closed so it does not permanently increase USDT in circulation. This flies in the face of the Tether operating model described in its whitepaper - issuance of USDT is supposed to be on a one-for-one basis against dollars. However a primer published in May 2021 says only that that 'newly issued [USDT] must be backed by collateral' and that 'redeemed [USDT] tokens are not released back into circulation unless new collateral has been provided'."

This St. Louis Fed article explores non-custodial crypto asset mixers such as Tornado Cash. We analyze what types of mixers exist and how they work. We discuss opportunities and risks and offer an approach, based on voluntary disclosure, that would allow financial market regulators to combat money laundering and illicit activities, while allowing honest users to interact with privacy-enhancing protocols. We explain how crypto asset mixers play an important role on public blockchains and that privacy may be difficult to attain without them.

"This St. Louis Fed article explores non-custodial crypto asset mixers such as Tornado Cash. We analyze what types of mixers exist and how they work. We discuss opportunities and risks and offer an approach, based on voluntary disclosure, that would allow financial market regulators to combat money laundering and illicit activities, while allowing honest users to interact with privacy-enhancing protocols. We explain how crypto asset mixers play an important role on public blockchains and that privacy may be difficult to attain without them."

The BIS published a primer on tokenization and its key elements. Tokenization can reap gains through transaction automation and new types of asset transfer, but it raises economic, legal and technical issues. These challenges define a "tokenization continuum" that represents the trade-offs involved in the tokenization of different kinds of traditional assets. The tokenization continuum suggests that where tokenisation is easiest, per-unit gains are likely to be modest. Efforts that concentrate initially on identifying the assets that are most suitable for tokenization may yield the largest benefits, especially when the asset is traded in large volumes.

R3 published a short primer on how Regulated Liability Network (RLN) tokens would work within the structure of the R3 digital currency sandbox. It first describes the proposed technical architecture of the RLN along with where it sits within the existing sandbox. It then look into the specifics of how issuance and payment operations would work were RLN tokens to be issued in a Corda environment.

The IMF published a paper that uses raw Bitcoin data covering both on-chain (on the Bitcoin blockchain) and off-chain (outside the Bitcoin blockchain) transactions globally to gain a better understanding of cross-border Bitcoin flows. It finds that Bitcoin cross-border flows respond differently than capital flows to traditional drivers of capital flows, and differences appear between on-chain and off-chain Bitcoin cross-border flows. Off-chain cross-border flows seem correlated with incentives to avoid capital flow restrictions.

The U.S. Federal Reserve (Fed) published a note that investigates permissionless network governance issues through three related analyses. First, it provides a primer on permissionless blockchain network stakeholders, focusing on developers, nodes, and users. Second, it lays out some similarities and differences in governance patterns between the two largest permissionless blockchain networks, Bitcoin and Ethereum. Finally, the note traces differences in models of change between the two networks, with an emphasis on their histories of hard forks-protocol updates that are not backwards compatible. The note concludes by laying out a variety of important research questions at the nexus of governance and software updates that warrant further investigation.

Before implementing blockchain technology, managers, builders and developers need to ask themselves one question: "why blockchain?" There are three criteria for a decentralized system: (a) a uniformly accepted single source of truth, (2) the system must receive inputs from two or more parties, and (3) the parties must not trust each other and their interactions must, therefore, be authenticated via a third party. Also, it must be determined whether a centralized or distributed third party could serve in the place of a blockchain.

"A crypto wallet is a piece of software or hardware that enables you to store, access and interact with cryptocurrencies like Bitcoin and Ethereum. While hardware wallets are a standalone physical device used to store digital assets, software wallets are installed on a user's device (desktop or mobile). Both hardware and software wallets store the private keys-strings of letters and numbers that act, in effect, like a highly sensitive password. "

"We consider a continuous-time financial market with no arbitrage and no transactions costs. In this setting, we introduce two types of perpetual contracts, one in which the payoff to the long side is a fixed function of the underlyers and the long side pays a funding rate to the short side, the other in which the payoff to the long side is a fixed function of the underlyers times a discount factor that changes over time but no funding payments are required. Assuming asset prices are continuous and strictly positive, we derive model-free expressions for the funding rate and discount rate of these perpetual contracts as well as replication strategies for the short side. When asset prices can jump, we derive expressions for the funding and discount rates, which are semi-robust in the sense that they do not depend on the dynamics of the volatility process of the underlying risky assets, but do depend on the intensity of jumps under the market's pricing measure. When asset prices can jump and the volatility process is independent of the underlying risky assets, we derive an explicit replication strategy for the short side of a perpetual contract. Throughout the paper, we illustrate through examples how specific perpetual contracts relate to traditional financial instruments such as variance swaps and leveraged exchange traded funds."

"Recent advancements in decentralized finance (DeFi) have resulted in a rapid increase in the use of Automated Market Makers (AMMs) for creating decentralized exchanges (DEXs). In this paper, we organize these developments by treating an AMM as a neoclassical black-box characterized by the conversion of inputs (tokens) to outputs (prices). The conversion is governed by the technology of the AMM summarized by an 'exchange function'. Various types of AMMs are examined, including: Constant Product Market Makers; Constant Mean Market Makers; Constant Sum Market Makers; Hybrid Function Market Makers; and, Dynamic Automated Market Makers. The paper also looks at the impact of introducing concentrated liquidity in an AMM. Overall, the framework presented here provides an intuitive geometric representation of how an AMM operates, and a clear delineation of the similarities and differences across the various types of AMMs."