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"The term decentralized finance (DeFi) refers to an alternative financial infrastructure built on top of the Ethereum blockchain. DeFi uses smart contracts to create protocols that replicate existing financial services in a more open, interoperable, and transparent way. This article highlights opportunities and potential risks of the DeFi ecosystem. I propose a multi-layered framework to analyze the implicit architecture and the various DeFi building blocks, including token standards, decentralized exchanges, decentralized debt markets, blockchain derivatives, and on-chain asset management protocols. I conclude that DeFi still is a niche market with certain risks but that it also has interesting properties in terms of efficiency, transparency, accessibility, and composability. As such, DeFi may potentially contribute to a more robust and transparent financial infrastructure. "

This report, prepared by the Committee on Payments and Market Infrastructures, the Bank for International Settlements, the International Monetary Fund and the World Bank, analyses how central bank digital currency (CBDC) could facilitate enhanced cross-border payments, and how practical efforts are taking these considerations forward. It concludes that facilitating international payments with CBDCs can be achieved through different degrees of integration and cooperation, ranging from basic compatibility with common standards to the establishment of international payment Infrastructures. The analysis highlights both the need for multilateral collaboration on macro-financial consequences as well as the importance of interoperability between CBDCs.

The Reserve Bank of India has constructed a composite Digital Payments Index (DPI) to capture the extent of digitisation of payments across the country. It comprises of 5 broad parameters; (i) payment enablers (weight 25%), (ii) payment infrastructure - demand-side factors (10%), (iii) payment infrastructure - supply-side factors (15%), (iv) payment performance (45%) and (v) consumer centricity (5%). Each of these parameters have sub-parameters which, in turn, consist of various measurable indicators.

The most important facets of dFMI are the removal of systemic risk, a 24/7 market, confining risk to just the counterparties, resilient infrastructure, ambient legal and regulatory compliance, faster but liquidity preserving settlement, the preservation of anonymity and privacy and the removal of asset silos. Most projects focus on a subset of these facets. The choice is to do incremental transformation or a more radical change. It is evident that the dominant FMIs and market players are resistant to change as their very existence and fat margins are threatened by the new world and they will be compelled by a combination of forces to transform or be replaced.

Fintech funding rebounded in Q2 2020 but deal activity continues to fall. Funding increased 17% quarter-over-quarter (QoQ) to $9.3B in Q2. However, monthly deal activity hit a fresh low of 127 deals in April before picking up the pace in June, which saw 141 deals. Quarterly deal activity continued its steady decline that began pre-pandemic in Q4 2019, potentially indicating the presence of other headwinds in addition to Covid-19. Fintech mega-rounds ($100M+) hit a new quarterly high of 28 as the largest companies in the space raised additional funding. M&A activity is concentrated within payments/banking infrastructure and wealthtech. Sofi's acquisition of Galileo and Mastercard's acquisition of Finicitydemonstrate the rush to own banking and payments infrastructure software. Wealthtechhad an especially active quarter with the acquisitions of Personal Capital by Empower Retirement, Folio by Goldman Sachs, and Advisor Engine by Franklin Templeton.

SWIFT gpi Instant has gained its first live link in the UK, with customers of Lloyds Banking Group now able to remit instant cross-border payments through Lloyds via the UK Faster Payments system. The gpi Instant service works by connecting SWIFT gpi, the high-speed cross-border rails with real-time domestic infrastructure, in this case the UK's Faster Payments. It enables banks to use existing infrastructure to provide better service 24/7, with faster speeds, clarity on fees and, crucially, predictability on when an end beneficiary's account will be credited.

The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published for public consultation preliminary guidance that confirms and clarifies that systemically-important stablecoin arrangements (SAs) should observe international standards for payment, clearing and settlement systems. The report proposes additional guidance on how certain aspects of the CPMI/IOSCO Principles for Financial Market Infrastructures (PFMIs) apply to the novel features of SAs.

"USDC and other stablecoins are being adopted for many reasons, but one major benefit of stablecoins over traditional settlement infrastructure (e.g. Fedwire) is that they run on crypto-native payment rails that operate 24/7, 365. The heatmap below breaks down USDC activity by day of week. On-chain data show that USDC is mainly used during weekdays, but has some activity during the weekends when traditional infrastructure is largely unavailable."

"U.S. Senators Cynthia Lummis (R-Wyo.) and Pat Toomey (R-Pa.) announced a compromise between Democrats, Republicans and the Treasury Department in a contentious tax provision in the Senate's infrastructure bill on Monday that would exempt crypto transaction validators from a broadened definition of "broker.""

The $550 billion bipartisan infrastructure bill that's currently making its way through the U.S. legislature and reportedly includes a provision to raise $28 billion from crypto investors, by applying new information reporting requirements to exchanges and other parties. Any broker that transfers any digital assets would need to file a return under a modified information reporting regime. It also includes decentralized exchanges and peer-to-peer marketplaces in its definition of brokers. Additionally, digital assets are added to the current rules requiring businesses to report cash payments over $10,000.

The Biden administration is reportedly pushing back against a last-minute effort by a bipartisan group of senators to limit a proposal in the infrastructure bill to increase federal regulation of crypto-assets. The original version of the bill sought to help pay for itself by boosting information reporting requirements and broadening the definition of a "broker" for tax purposes to include any parties that might interact with crypto, including miners, node operators, software developers or similar parties. Then Senators Ron Wyden (D-OR), Cynthia Lummis (R-MT), and Pat Toomey (R-PA) introduced an amendment that would exempt miners and validators, which was followed by the latest amendment from Senators Rob Portman (R-Ohio) and Mark R. Warner (D-Va.) that exempted only proof of work miners. The debate will now likely stretch into the weekend.

An updated version of the U.S. Senate's infrastructure bill narrows the definition of "broker" for the purposes of crypto tax collection, but stops short of specifying that only companies that provide services for customers qualify. An earlier version of the bill sought to help pay for itself by boosting information reporting requirements and broadening the definition of a "broker" for tax purposes to include any parties that might interact with crypto. An updated version now does not explicitly include decentralized exchanges, but it also doesn't explicitly exclude miners, node operators, software developers or similar parties.

"Before U.S. President Joe Biden signed the Infrastructure Investment and Jobs Act into law in November, many groups spoke out against a provision that broadens the tax code's definition of "broker." But there is another hidden cryptocurrency provision in this new law that amends part of the tax code in a way that will greatly expand financial surveillance, criminalize certain cryptocurrency transactions and, in my view, violate the Fourth Amendment of the U.S. Constitution."

The Depository Trust and Clearing Corporation (DTCC) is developing a prototype to test the ability of US clearing and settlement infrastructure to support a Fed-issued CBDC using a distributed ledger technology (DLT) platform. Project Lithium will measure the benefits of a CBDC and inform the future design of the Depository's clearing and settlement offerings. It will also explore how a CBDC could enable atomic settlement, a conditional settlement that occurs if delivery and payment are both received at the same time.

"Founded in 2015 by Charles Hoskinson and Jeremy Wood, IOHK is one of the world's pre-eminent blockchain infrastructure research and engineering companies. We are a fully decentralised remote working organisation committed to the highest principles of academic rigour and evidence-based software development. The company builds high-assurance blockchain infrastructure solutions for public, private sector and government clients. It is also the driving force behind the decentralised and smart contract platform, Cardano."

The Leibniz Institute for Financial Research SAFE published a paper that weighs the pros and cons of a possible digital euro. It concludes that, if the decision on adoption had to be taken today, the arguments against would outweigh those in favor. However, a reasonable case can be made that having in place digital payment infrastructures at the central bank, potentially accessible by a very large user base, may help overcome adverse contingencies. The related operational and legal infrastructures require a long preparatory phase. Preparing in advance can therefore be useful, even though the eventual use may appear uncertain or even unlikely.

"DerivSource's Lynn Strongin Dodds explores the how the industry infrastructure is evolving to support the trade lifecycle for digital assets. Read on for an overview of digital asset trading via exchanges, clearing and settlement, custody as it is now and the obstacles the industry faces now"

The European Central Bank (ECB) will be running a digital euro prototyping exercise to allow market participants to develop front-end prototypes that can be integrated with the back-end infrastructure developed by the Eurosystem. The documents were provided to the five companies that were selected to carry out the experimental work (CaixaBank (peer-to-peer online payments), Worldline (peer-to-peer offline payments), EPI (point of sale payments initiated by the payer), Nexi (point of sale payments initiated by the payee), and Amazon (e-commerce payments)). The material published provides the information needed by any market participant to develop front-end prototypes compatible with the Eurosystem's back-end infrastructure, without restricting participants' potential to innovate. The prototyping exercise is expected to be completed in the first quarter of 2023.

The Monetary Authority of Singapore (MAS) released a report detailing potential uses of a purpose-bound digital Singapore dollar (SGD) and the supporting infrastructure required, marking the successful completion of Phase 1 of Project Orchid. While MAS has assessed that the case for a retail CBDC in Singapore is not compelling for now, Project Orchid aims to build the technical capabilities and competencies necessary for MAS to issue a retail CBDC, should the need arise. Phase 1 explored the concept of purpose-bound digital SGD that enables senders to specify conditions, such as validity period and types of shops, when making transfers in digital SGD. Some of its use cases will be tested through trials with the public and private sector in 2022 and 2023. The next phase of Project Orchid will look at what the best ledger technology is and how this can be integrated with the existing infrastructure. https://www.mas.gov.sg/publications/monographs-or-information-paper/2022/project-orchid-whitepaper

The Committee on Payments and Market Infrastructures (CPMI), the BIS Innovation Hub (BISIH), the International Monetary Fund (IMF) and the World Bank published a paper on challenges to addressing and approaching the establishment of a multilateral cross-border payments platform. Such a platform could reduce the need for intermediaries and allow payment service providers in different jurisdictions to transact directly with each other. Two paths are examined - the growth approach that involves expanding existing multilateral platforms to additional jurisdictions, currencies and participants, and the greenfield approach that involves building a new, potentially global, Infrastructure for cross-border payments.